With a R900 billion hole in its balance sheet, extreme depreciation of assets and a R419 billion debt burden, experts say the cash-strapped Eskom is beyond redemption.
Energy expert Ted Blom said no amount in bailouts would save the power utility and the only solution was to place the utility under business rescue.
Eskom, currently battling to keep the lights on in summer when demand is supposed to be at its lowest, wants government to take over R100 billion off its debt to improve its balance sheet.
Jabu Mabuza, Eskom chairperson, reportedly brought up the proposal, which was never discussed with Treasury despite implications on the fiscus, during an interview at an investor roadshow in London.
The power utility is currently kept afloat by a government debt guarantee of R350 billion and Blom says Eskom is an “energy skunk on quicksand”.
He said Eskom’s R1.4 trillion in assets are now worth just R250 billion. They have R170 billion in their asset book for Medupi Power Station, but Blom said anybody could buy Medupi for less than R30 billion.
“Eskom is kaput. It is game over for them. No supplier wants to work with them because of nonpayment,” said Blom.
“The only way out is to put Eskom on business rescue, get rid of excess staff and get rid of its asset value,” he said.
Not only would the proposed debt absorption have a negative impact on the fiscus, but it also posed a risk of other existing Eskom lenders demanding that their payment be taken over by the state, warned energy expert Chris Yelland.
“The proposal means government will take over the R100 billion worth of debt.
“Government will pay some of Eskom’s lenders directly, but if you selectively say some of the lenders will be paid by government, other lenders will be anxious and also want their payments to be paid directly by government,” he said.
Yelland said Mabuza was “jumping the gun” and announcing the proposal without consulting Treasury would be seen as putting Treasury under pressure. This, he said, would not go down well with Treasury.
“Treasury was not consulted before this announcement was made and there are implications on the fiscus that need to be considered.
“R100 billion is a lot of money,” he said.
Treasury said although it was yet to receive a proposal from Eskom, any debt relief proposal by the state-owned utility would have to be assessed in the context of the turnaround plan that Eskom was expected to share with government soon.
“Government’s policy stance on the funding of state-owned companies remains that such funding must be done in a deficit-neutral manner,” Treasury said in response to questions.
Eskom said it was in no position to comment on the R100 billion debt-relief proposal at this stage, except to say it was in the process of sharing the details of its strategic review with various strategic stakeholders.