Privatising our assets? Eskom’s debt to the nation

PRESIDENT Cyril Ramaphosa delivers the 2019 State of the Nation Address in the National Assembly last night. Phando Jikelo/African News Agency(ANA)

South Africa has officially entered an era of privatization where so called non performing state owned assets will be unbundled and sold off to private entities who may be more inept at running them. Institutions such as Eskom, South African Airways have been bleeding dry, looted and have been at the centre of corruption and are currently forming part of the core discussions at the State Capture Commission of Inquiry.

The selling off of state assets has been on the cards for a while within the new administration. The era of neo-liberalism has finally hot home and if one thinks there is still something called a “National Democratic Revolution” that is scheduled to bring economic freedom and prosperity to the millions of people in South Africa who live below the poverty datum line, then one could be forgiven for being naïve.

The bottom line is that South Africa is for sale and the developmental objectives that kept the tripartite alliance and organised labour at bay has essentially been thrown out the window. In his second State of the Nation Address (SONA) held in Cape Town on Thursday evening, President Cyril Ramaphosa named the following tasks that will underpin everything his presidency this year, namely, accelerate inclusive economic growth and create jobs, improve the education system and develop the skills that we need now and into the future, improve the conditions of life for all South Africans, especially the poor, step up the fight against corruption and state capture, and to strengthen the capacity of the state to address the needs of the people. How then, will his presidency reach these objectives if it sells off some of its core assets?

There are a number of major drivers that have paved the way for the unbundling of Eskom which is running at a loss without revenue to meet its escalating costs. The power utility is facing escalating debt-servicing costs where its primary energy costs are the drivers. The state owned company R390billion in debt and is set to make another R2 billion loss this year because its interest plus capital is making it too expensive to service its debt.

In addition, when energy minister Jeff Radebe signed into effect the 27 Independent Power Producers (IPPs) in April last year, it put a significant strain on Eskom’s revenue stream. As it stands, Eskom is unable to generate an earnings before interest tax, depreciation and amortisation of 35% to pay back its debt. Part of the reason why Eskom cannot pay its debt is that the burdens of carrying the cost of the IPPs were passed onto the company. The IPPs are currently costing Eskom close to R90million a day and these costs are passed on to consumers as the President in the SONA last night called for the poorest of the poor to start paying for their electricity.

In his speech, Ramaphosa said he has established the Presidential State Owned Enterprise (SOE) Council, which will provide “political oversight and strategic management in order to reform, reposition and revitalise state owned enterprises, so they play their role as catalysts of economic growth and development.”

In his speech, he commented: “We want our SOEs to be fully self-sufficient and be able to fulfil their development and economic role. Where SOEs are not able to raise sufficient financing from banks, from capital markets, from development finance institutions or from the fiscus, we will need to explore other mechanisms, such as strategic equity partnerships or selling off non-strategic assets.

He explained that in doing this, his government would seek to build a pragmatic and cooperative relationship between government, organised labour and private sector stakeholders, where all parties can jointly determine a strategic path for SOEs to create jobs, enable inclusive growth and become operationally and financially sustainable.

“Security of energy supply is an absolute imperative. Eskom is in crisis and the risks it poses to South Africa are great. It could severely damage our economic and social development ambitions. We need to take bold decisions and decisive action. The consequences may be painful, but they will be even more devastating if we delay,” explained Ramaphosa.

Ramaphosa’s speech at this year’s SONA is set the raise the ire of organised labour who have vowed to fight against the privatization of state assets by any means necessary. The prevailing consensus amongst organised labour unions such as the National Union of Metal Workers of SA, National Union of Mineworkers and the South African Federation of Trade Unions is that privatizing will result in massive job losses. 

Currently, 15000 would have to be shed in order for the utility to cut costs and reach its sales targets. Unions have maintained that unbundling Eskom’s assets would be a declaration of war against the poor. One of the underlying problems with SA’s energy’s crisis is that there are private sector players that have seen an opportunity and are looking to make a profit and score big from it, even if it means steering away from the ANC’s developmental policy positions.

As entities operating in a developmental state, Eskom and the rest of the SOEs were not about profiteering but were established to ensure industrial security. With the de-industrialisation of the mining, manufacturing and means of production it has enabled private sector players to determine and dictate policy direction which is evident in Ramaphosa’s overzealous investment drive. This drive should not come at the expense of the electricity security. It is no secret that when private sector players come in, the prices of electricity will shoot through the roof and this will have an adverse effect on the poor. 

Ayanda Mdluli is a Special Investigations reporter. He is also the national spokesperson for the Forum for Journalists for Transformation (FJT) in South Africa.