It seems an eternity since there has been anything to be excited about when it comes to South Africa’s most important, and most embattled, State-owned company (SoC), Eskom. Since 2008, the business has lurched from supply crunch to wet-coal chaos, from funding crisis to construction confusion, from employee bonus criticism to demand collapse, from executive corruption to governance calamity. Even the end to load-shedding was soon shown up to be largely the result of demand destruction.
This lack of enthusiasm for a business once viewed as the jewel in South Africa’s State-company crown was on display again last week, when the Public Investment Corporation (PIC) was heavily criticised, mostly by labour, for having advanced a R5-billion short-term loan to help Eskom close out its financial year without default.
In this instance, though, I find myself sympathetic to both the PIC, as well as the new Eskom leadership, which has inherited a liquidity problem that, if not managed, could morph into a corporate collapse that has the potential not only to undermine government’s Budget balance, but also to accelerate the country’s slide even deeper into junk territory.
Naturally, there have to be questions about whether it’s not a case of ‘good’ pension-fund money ‘after bad’ Eskom debt, particularly given that the current crisis has been self-inflicted. However, given the perilous state of things, the PIC’s loan is vital not only for Eskom, but also for the country. And while the PIC may not have fully consulted with unions, the loan, which is fully guaranteed by government, also appears to carry few genuine downside risks for the Government Employees Pension Fund.
By making such a statement, I am obviously placing a great deal of faith in the new Eskom leadership – a trust that I hope does not turn out to be misplaced. However, if the new leadership is as credible as it seems to be on paper, then they surely deserve to be given a fighting chance to turn the business around. Failure to secure the R20-billion in emergency funding that the R5-billion PIC loan was key to unlocking would have made their task all but impossible.
However, I support the loan for three other reasons. As already articulated, it provides the new Eskom leadership with time and space to finalise a credible corporate and funding plan, built on a new platform of sound governance, ethical behaviour and operational efficiency. Secondly, it sends an important signal to Eskom (as well as all other SoCs) that government has reached the limit of what it is willing to contribute in the form of direct bail-outs. Thirdly, it signals that the new Eskom leadership is expected to be more creative, innovative and self-reliant in the solutions they propose for strengthening the balance sheet.
Naturally, any salvage operation requires fast and decisive decision-making, which could, in the fullness of time, be shown to have included mistakes and missteps. Already PIC CEO Dan Matjila has reportedly apologised to public servants for the lack of consultation on the loan. Nevertheless, I find myself genuinely excited about the winds of change blowing through Eskom and believe that this urgent funding support will actually further strengthen the hand of the reformers.