Banks tell Cyril: Put politics aside when it comes to Eskom

JOHANNESBURG — President Cyril Ramaphosa’s announcement that Eskom would be unbundled into three separate units was seen an admission by the government that it needs to change the way it views the parastatal. However, many are pointing out that these three units will still be state-owned and are asking how this will really solve the massive crisis at the power utility. One such critic is the Banking Association of South Africa which says that there needs to be at least some kind of private-equity deal when it comes to Eskom. With Eskom’s massive debt burden and poor performance, one has to wonder whether there is any investor brave enough to embark on such a deal. Nevertheless, something has to be done to fix  Eskom but with it being an election year politics sometimes comes out trumps. – Gareth van Zyl

By Roxanne Henderson and Loni Prinsloo

(Bloomberg) – A lobby group representing South African banks urged President Cyril Ramaphosa to prioritise the country’s wider interests rather than securing votes for the ruling African National Congress if he is to boost confidence in the economy before May elections.

Ramaphosa’s plan to split its troubled power utility Eskom Holdings SOC Ltd. into three separate parts has met resistance from the country’s largest labor federation, which has been in an alliance with the ANC and the country’s communist party since winning the nation’s first multi-racial elections in 1994. While his administration has replaced boards and top executives at state-owned companies, including Eskom, it hasn’t embraced the job cuts needed to bring costs down or the privatisation of state assets.

“It’s crazy in this day and age we still can’t say privatisation, but some sort of private-equity stake has got to be there,” said Banking Association of South Africa Managing Director Cas Coovadia. “That brings in money, it reduces the state’s burden, brings in more accountability, expertise.”

This week’s rolling blackouts across Africa’s most industrialised economy is driving home just how much damage years of mismanagement, corruption and a lack of maintenance have done to the 96-year-old utility. Saddled with debt equivalent to about 8% of South Africa’s gross domestic product, Eskom isn’t able to produce enough electricity to meet demand or fund its operations, while South African Airways is surviving off government guarantees and the national broadcaster is struggling to pay its staff.

“Unless there is some serious restructuring of these organisations it would be quite irresponsible for banks to lend,” Coovadia said. “It’s not that banks don’t want to lend, it’s that banks have certain criteria.”

The election in three months will be the first since the ANC forced Jacob Zuma to quit as president after a scandal-marred tenure that spanned almost nine years and saw its support decline. Ramaphosa said in parliament on Thursday that he will meet with the Congress of South African Trade Unions over the government’s plans with Eskom.

The president needs to rise “above the fray” and take “decisions in the national interests of the country and not the ANC,” Coovadia said. “Ramaphosa is probably the most pragmatic leader we’ve got at the moment, who understands the issues” and a big win in the elections will give him a mandate from voters to push harder in acting on the challenges facing the country, he said.

Ramaphosa, 66, is seeking to attract foreign investors put off by past policy flip-flops, and has managed to secure at least R300bn ($21bn) of his target to raise $100bn in investments over five years. He has announced measures to rebuild institutions like the National Directorate of Public Prosecutions and set in motion several commissions of inquiry into graft.

While plans to split Eskom into generation, distribution and transmission businesses under a state holding company are a step in the right direction, “the critical issue is we need quick movement on implementation,” Coovadia said. While South Africa has seen some fruits from Ramaphosa’s efforts, “we need to take the hard decisions to grow that economy.”