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UPDATE 2-South Africa's Eskom not insolvent but facing cashflow trouble
November 13, 2017 / 10:19 AM / in 4 days

UPDATE 2-South Africa's Eskom not insolvent but facing cashflow trouble

* Utility in leadership crisis

* Says 2017/18 tariff increase not sufficient

* Electricity sales muted, costs spiral upwards

* Company says has enough stocks to weather strike (Adds Eskom says financially afloat, strike, details)

By Tanisha Heiberg and Mfuneko Toyana

JOHANNESBURG, Nov 13 (Reuters) - South Africa’s scandal-plagued power utility Eskom said on Monday it was not insolvent but was facing serious liquidity issues and could be in “trouble” if the situation persisted, adding that it was working to control its costs.

Eskom, the sole power supplier in Africa’s most industrialised economy, is in the midst of a leadership crisis and has been at the heart of allegations of illegal contracts and undue influence in awarding tenders to the Gupta family, friends of President Jacob Zuma.

Zuma and the Guptas have denied any wrongdoing.

Eskom spokesman Khulu Phasiwe said the firm’s sales growth had been muted while its operating costs were very high and its tariff for the current financial year was low.

“We are not insolvent but we are projecting that if we continue along this trajectory we might be in trouble,” Phasiwe told Reuters.

“We as a company need to sort ourselves out and get our house in order so that when we go out to the market to raise money these things do not become a hindrance,” said Phasiwe.

In a separate statement, Eskom said the 2.2 percent tariff increase it was granted by the energy regulator for 2017/18 had presented challenges to the company’s liquidity position for the current financial year.

Eskom was granted a 9.4 percent tariff rise in the previous year.

Over the years, Eskom has been imposing above-inflation increases on its customers, provoking cries from industry and households alike. But Eskom maintains big hikes are needed to shore up its balance sheet and keep the lights on.

Eskom said as a result of the lower tariff it has had to undertake cost containment as a key component of its strategy.

NEW CEO

Eskom said it has secured about 56 percent of the funding requirements for the current financial year, but to raise the rest of its financial outlay it required, among other things, to constitute a new board of directors, resolve internal governance issues and appoint a permanent CEO and CFO.

Public Enterprises Minister Lynne Brown, who oversees Eskom, told lawmakers the utility will appoint a new board and begin the search for a new CEO at a special meeting in November.

Eskom said it was confident that it would carry out the required changes and maintain liquidity to run its operations.

“Our liquidity levels are not at the desired levels; however, they are sufficient to fulfil our commitments,” Eskom’s interim group chief executive Sean Maritz said.

In a separate statement, Eskom said it had healthy stockpiles across its coal-fired power stations and was building them further ahead of a potential coal wage strike by the National Union of Mineworkers.

The NUM is aiming to strike from Sunday after wage talks broke down last week at mines run by Anglo Coal, Delmas Coal, Exxaro, and Glencore GLEN.L, which account for about half of South Africa’s coal production.

“To mitigate the impact from this impending strike, the utility is working tirelessly to reclaim coal from current stockpiles, as well as build up operational stockpiles,” Eskom said in an emailed response to Reuters’ queries. ($1 = 14.5198 rand) (Additional reporting by Ed Stoddard; Writing by James Macharia; Editing by Adrian Croft)

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