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- The challenges Eskom faces require the right skills and support for its leadership, says former Eskom executive Sir Mick Davis.
- The former head of Xstrata says the state must step back and allow Eskom leaders to do their job.
- The debt of the energy company has increased to R488 billion, while the municipalities owe it R31.4 billion.
Eskom has a mountain to climb to address its generation woes and mounting debt, but the challenges facing the power company can be solved in a few years, according to Sir Mick Davis, a former energy company executive who now has his based in the UK. .
With extensive mining experience and a track record in the struggling energy company, which is burdened with a debt load of R488 billion, Davis said Eskom needed to meet its operational challenges with the right skills and a change in legislation to help alleviate your capacity limitations.
“Eskom has a mountain to climb as an organization that is actually insolvent. Its assets are overvalued and it has a huge amount of debt,” Davis told delegates at Joburg Indaba, a mining industry conference.
Davis, the former CEO of Eskom, has a long relationship with the mining industry, having served as a director of Xstrata and led the creation of Ingwe Coal as well as the listing of BHP Billiton on the London Stock Exchange. The current challenges Eskom faces have slowed growth and contributed to investor nervousness, and the company has a “mountain to climb”.
But he said, with the right skills to repair the power company’s outdated infrastructure, which is often the cause of power outages, the organization can take a turn.
“It is a problem that can be solved. Eskom’s challenges can be solved in a period of a few years with the right focus and support for the Eskom CEO,” he said.
Debt threat
“If the government takes a step back and allows teams to do the work they need, it can be fixed in a reasonable amount of time,” he said, adding that supplying power from independent producers could be one way to alleviate the limitations of the grid.
Davis said the company has no choice but to collect money owed by municipalities. Eskom’s municipal debt currently stands at a staggering R31.4 billion, and the utility has had to resolve in recent months to seize assets and bank accounts of some defaulted municipalities.
Andre de Ruyter, Eskom’s CEO, shared the platform with Davis, who also acknowledged that the debt burden has affected the power producer for years and has put public finances to the test, as most of the debt is guaranteed by the state.
He said that Eskom’s financial model indicates that the utility can only achieve independent financial sustainability if its debt balance is reduced to R200 billion, a closing cash balance of R30 billion, and an EBITDA margin of 35%.
“The debt of the municipalities with Eskom, which continues to increase, is an indisputable threat to the financial sustainability of Eskom,” said De Ruyter.
In the 2019 Budget, the National Treasury allocated R23 billion to Eskom to help the company pay off its debt. It was then allocated an additional 59 billion rand over two years (26 billion rand in 2019/20 and 33 billion rand in 2020/21) through a special allocation process.
De Ruyter said that while capital assistance from the National Treasury remains an indispensable source of support for Eskom, it was clear that a structural solution must be found.
