Eskom debt relief in sight, but elsewhere it’s a sticky mess

Co-operative Governance Minister Nkosazana Dlamini-Zuma yesterday appeared before Parliament’s spending watchdog, the Standing Committee on Public Accounts (Scopa), meeting on progress made on repaying municipal debt.

It didn’t get very far. The minister is in charge of local government, but not electricity. She is a member of the inter-ministerial committee (IMC) on service delivery which is chaired by Deputy President David “DD” Mabuza.

But Mabuza’s parliamentary counsellor Hope Papo had written to Scopa to say the IMC had nothing to do with the debt that councils owed to Eskom. That letter stands in contrast to an earlier statement before Scopa by Deputy Co-operative Governance Minister Parks Tau about how the IMC had taken over the responsibility of dealing with municipal debt to Eskom.

An inter-ministerial task team (IMTT) once existed which not only dealt with municipal Eskom debt, but also overall electricity reticulation, or who has the right to distribute – and crucially charge for – electricity.

On Wednesday, Dlamini-Zuma offered to raise the matter with her Cabinet colleagues. 

“I’ll go back and try continue this discussion. But also we need Salga [South African Local Government Association] to convey to the municipalities to pay… I’m not pleading for patience or anything. I’ll go back.”

When ANC MP Bheki Radebe asked, “Where is this issue [municipal debt] residing in the Cabinet?”, Dlamini-Zuma’s response was terse: “I think it’s an unfair question. I think the leader of government business can explain that to you.”

That would be Mabuza, who as deputy president is also the leader of government business, or the liaison between the executive and Parliament.

Scopa chairperson Mkhuleko Hlengwa took a dim view of the ministerial buck-passing.

“We laboured under the impression the structures set up at executive level are doing the work. Clearly that’s not happening,” he said.

“Here is an unprecedented level of failure to do things properly… Nothing speaks to debt recovery. It’s as if nobody recognises this as a crisis.”

Scopa will now call the deputy president, the ministers in the Presidency, the finance and cooperative governance departments, MECs, Salga and Eskom to appear before MPs on 18 March 2020.

Progress was more readily apparent elsewhere.

At the National Economic Development and Labour Council (Nedlac), discussions on relieving Eskom’s R450-billion debt, much of it government-guaranteed, have seen a toenadering between business and Cosatu.

In the making since late 2019, Cosatu put a determined push from early February 2020 for its proposal that R250-billion should be taken off Eskom’s debt book through the Public Investment Corporation (PIC), the government-owned asset manager with more than R2.1-trillion, most of it government workers’ pensions – the Government Employees’ Pension Fund (GEPF) at some 86% holds the largest stake – and social savings.

Indications are that all the details are expected to be worked out by the end of March.

“We are 90% there. We are still engaging with some of our other social partners,” Cosatu’s parliamentary co-ordinator, Matthew Parks, told journalists after Parliament’s public enterprise committee meeting.

Cosatu is scheduled to meet the trade union Solidarity on Friday – it has reserved its rights to go to court over Eskom accessing GEPF funds – and also Fedusa (Federation of Unions of South Africa).

“It’s about saving the nation. If Eskom goes under we’ll lose billions of rands of workers’ pensions,” Parks earlier told MPs. “The offer is not a blank slate. Workers’ pensions can’t be sacrificial lambs.”

There are 35 conditions attached to the deal, including a ban on retrenchments and job losses, a skills audit and a head-count, slashing bloated management ranks and firm, consistent action against corruption.

A central technical detail still has to be worked out: is it a special purpose vehicle (SPV) taking on the debt of Eskom, or is it taking equity? The R250-billion debt issue remains in both scenarios, but if it is an equity transaction then the possibility of softer terms and conditions for the transaction prevails.

Several key decisions on the nature of the SPV governance remain, although the dominant view seems to be that it should still be state-controlled, but with strong and significant representation of whoever has invested. That could be the PIC, using state workers’ pensions and social savings as per Cosatu’s original proposal, but also other pension funds, which can, under the current legislation, invest up to 10% in alternative investment.

This statutorily permissible alternative investment option under the Pensions Act was also touted by President Cyril Ramaphosa on Tuesday during an interaction with the South African National Editors’ Forum (Sanef) and the Parliamentary Press Gallery Association (PGA).

“Only 2% ever was put in alternative investments. Where is the money in our country? R8-trillion are in pension funds. And 10% is R800-billion that could be available for investment in Eskom, water reticulation…”

On the electricity social compact before Nedlac, Ramaphosa said, “discussions are ongoing”.

Ramaphosa was buoyant on Tuesday. As was Cosatu on Wednesday – even if Scopa was less than upbeat over the executive buck-passing and lack of movement on the R26.8-billion municipal debt.

On Wednesday evening, it was the turn of Eskom board and top executives to appear before Scopa.

That didn’t go so well. MPs were disappointed with discrepancies over what was presented to the committee, and the voluminous documentation was received at the last minute.

Apparently government protocol was to blame. 

“The 250 pages were sent to Public Enterprises, that’s the protocol,” said Eskom board interim chairperson Professor Malegapuru Makgoba, explaining the department should have forwarded the documents. 

The documents that Eskom briefed Scopa on outlined longstanding and flagrant use of deviations to bypass normal procurement process – leading to contract inflations of more than 1,000%, or “looting of the highest order” as Radebe put it.

Not all was a lost cause.

The documents Eskom submitted showed 59 employees had been “dismissed as a result of fraud and corruption” by 31 December 2019. An internal clean-up has led to 608 cases of fraud and corruption, with 354 already finalised. Forty employees were referred to the Hawks and the Special Investigating Unit (SIU). And Eskom is moving to recover State Capture money.

But the money is not stacking up – and Eskom continues to invoke the big stick of tariffs.

In documents before Scopa, not only did it emerge that R250-billion  debt relief is already factored into the Eskom corporate plan, but also that electricity tariffs will have to rise even more if that debt relief doesn’t happen. Or as the document put it:

“[T]he issue needing resolution is that of a tariff path that allows Eskom to recover prudent operating costs plus allows it a fair return on asset. The clarity of tariff path is required to ensure Eskom is not only financially sustainable, but also financially independent. If this price correction does not take place, then within a five- to eight-year window Eskom will highly likely revert to the situation it finds itself in now.”

But, as recently as 26 February 2020, Eskom, again, received taxpayer-funded bailout billions – the 2020 Budget allocated the power utility the lion’s share of the R60.1-billion it shares with SAA over the next three years.

And the 2019 Budget provided Eskom with an additional annual R23-billion over the next decade, followed by a R33-billion special appropriation approved by Parliament in mid-2019.

The tariff ceiling could well have been reached, and not only because of the rotational power outages that returned in 2019, and have been identified as a key reason for the technical recession Statistics South Africa declared on Tuesday.

Demand has dropped on the back of the widely accepted 400% tariff hikes over the past decade, as reiterated by Cosatu in another parliamentary briefing earlier on Wednesday. Eskom itself publicly acknowledges this drop in electricity sales, while anecdotally it’s emerging that the wealthy go off-grid with gas and solar and the working classes and the poor revert to candles and paraffin.

In some cases of municipal failure to pay Eskom, the power utility is shutting down supplies, leaving residents in the dark, even if they have paid up. 

Meanwhile, it emerged at Scopa that earlier in 2020, Public Works discovered the rates and electricity invoices presented for payment by many municipalities were often vastly inflated.

It’s a mess. And no one seems interested in extinguishing this national crisis. DM