How viable is it for Eskom to sell assets to reduce its debt?

Questions have been raised on what assets Eskom can sell to reduce its debt, which already amounts to about R400 billion.

In his budget speech last Wednesday, Finance Minister Enoch Godongwana said the National Treasury was “working on a sustainable solution” to deal with Eskom’s debt, but also indicated that the power utility would need to sell some of its assets.

Eskom, Godongwana said, has already received about R136 billion in bailouts, and has been allocated R88 billion over four fiscal years, with R21.9 billion allocated in 2022/23.

“Any solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring.

“We expect Eskom to take further steps towards cost containment, conclude the sale of assets and implement operational improvements to enhance the reliability of electricity supply. The outcome of this work, which is legally and technically complex, will be announced within the next financial year,” the minister said.

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Energy expert, Ted Blom, however, believes that these bailouts have not improved Eskom’s performance.

“EAF [energy availability factor] is at a 99-year low at below 60%,” he told The Citizen on Friday.

Eskom remains dependent on government support and continues to use debt to pay operational costs, according to the 2021 Budget Review.

Selling assets

Blom also pointed out that Eskom would struggle to sell its assets.

“The chances of Eskom selling its assets is close to zero as the creditors or bondholders will not allow collateral to be diluted.

“That seems to be the reason behind the CEO’s accelerated paying down of debt to release collateral, which would then allow the sale of assets if there are willing buyers. The only asset worth any money is the transmission grid,” he said.

Eskom chief financial officer (CFO), Calib Cassim, also said that it would not be easy for the power utility to sell assets to raise money.

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Speaking to City Press, Cassim explained that Eskom’s coal-fired power stations were old and, with countries around the world committing themselves to dealing with climate change, it would be difficult to sell its assets.

Cassim also said Eskom cannot sell its transmission grid due to its strategic value, as well as assets in its distribution system because the power utility is unable to collect the debt for its electricity sales.

“If it happens, it will be at a considerable discount,” he said.

The only other alternative was for government to increase its aid to Eskom, Cassim added.

Operational performance

According to the 2021 Estimates of National Expenditure, Eskom’s operational performance “remains inadequate, with persistent technical and plant faults”.

The document states that Eskom aims to address supply constraints through “interventions set out in the nine‐point plan to improve generation, which are short‐term, medium‐term and long‐term in nature”.

The interventions primarily involve repairing new plant defects, reducing trips and full load losses, accelerating the return of serviced units on long‐term forced outages, repairing partial load losses and boiler tube leaks, rebuilding coal stockpiles, increasing diesel stocks, and recruiting critical staff for the generation division.

But Blom says this process would be costly.

“To do the rebuild or refurbishment properly would take a minimum of five years and at least R600 billion. I have previously stated these numbers when Eskom announced their ambitious plan in 2020, but the genius of a CEO scoffed at it,” he said.

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Eskom is undergoing a process of restructuring into three different SOEs, responsible for generation, transmission and distribution.

The restructuring of Eskom is in line with its turnaround plan which was approved by the Department of Public Enterprises in 2019.

The restructuring is also critical to get more energy onto South Africa’s constrained grid which needs another 4,000MW to 6,000MW to close the supply gap and avoid the risk of load shedding.

Eskom met its deadline of 31 December for establishing a transmission company, with the separation of the generation and distribution divisions expected to be completed by December 2022.