By Tehillah Niselow
The World Bank has argued that Eskom is too big to fail, and the South African economy would not withstand a financial meltdown of the cash-strapped power utility.
“It is just too big to allow it to disintegrate, and fixing all these pieces will be costlier than trying to reform it,” the bank’s country director for SA, Paul Noumba Um, said at the launch of the bank’s 12th SA economic update on Tuesday in Johannesburg.
Noumba Um noted that the government is considering how to reform the debt-laden power utility and more action is likely to be taken after the May general elections.
“It depends on what government can do, but given the magnitude… will need more time.”
Eskom’s precarious financial situation – which includes R420bn in debt – has become an urgent priority for the government to deal with, as South Africa seeks to keep its sole investment grade credit rating.
A task team of energy experts and academics was established by President Cyril Ramaphosa following a spate of load shedding in December. It is expected to deliver its preliminary report on the power utility’s turnaround plan by the end of January.
A 2016 World Bank study found Eskom was potentially 66% overstaffed when compared to power utility’s worldwide. The power utility has tentatively started to overhaul its top management, but widespread job cuts will be fiercely resisted by unions.
Noumba Um said there was a need to need to look at reconfiguring the three units that currently fall under Eskom, generation, transmission and distribution. The ANC’s treasurer general Paul Mashatile said in July 2018 that the ruling party is considering breaking up the three sections and drawing in private investment.
Noumba Um added that there was also a major debt restructuring dimension to fixing Eskom. “Eskom owes money to the bank but municipalities also owe money to Eskom, that all needs to be looked at.”
The report published on Tuesday predicts a moderate acceleration in SA’s economic growth to 1.3% in 2019, highlighting risks such as a possible drought, debt at state-owned companies and contingent liabilities.
South Africa’s GDP growth has been lagging well behind its economic peers in emerging markets. At 1.3%, SA’s projected real economic expansion will come in at under a third of the estimated 4.2% growth rate of its emerging market peers. It is also well below the projected sub-Saharan average of 3.7%.
The World Bank said the the maturation of contingent liabilities at state-owned entities could add 2 percentage points to South Africa’s debt-to-GDP ratio, which rose to 55.8% in 2018/2019.