Eskom's woes are getting worse

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JOHANNESBURG - Ratinngs agency Fitch Ratings yesterday downgraded beleaguered Eskom to ‘BB-‘ from ‘BB+’ with a negative outlook, compounding the utility’s woes. Fitch’s decision comes days after another rating agency, Moody’s Investors Service, downgraded Eskom. It also comes a day after Eskom released results in which interim chief executive Phakamani Hadebe and acting chief financial officer Calib Cassim emphasised the organisation’s precarious financial position. The downgrades complete what is increasingly becoming a perfect storm for the troubled power utility. A combination of deep-seated concerns about poor governance, a weak balance sheet and financial ratios, falling electricity sales, a lower-than-expected tariff increase and bulging municipal arrears have compounded Eskom’s woes.

These factors count against the utility as it hopes to access funding in local and international financial markets.

Eskom said Fitch had cited weakening liquidity of Eskom and the company’s uncertain capacity to fulfil its short-term financial commitments as the underpinning rationale for their decision.

Hadebe yesterday noted Fitch’s decision, but said that the various measures that Eskom had embarked upon to turn the company around were yielding positive results.

“We have seen renewed enthusiasm from financial markets to support Eskom’s funding plan and the preliminary engagements with market participants have had positive outcomes.

“We are cognisant of the challenges that the company is dealing with and we are geared to effectively resolving these challenges and improving Eskom’s operational and financial sustainability in the interest of the South African economy,” said Hadebe.

Cassim said the next few months would be difficult for the power utility.

Progress

He said Eskom should move with speed and urgency to resolve its financial problems, adding that the power utility was "making progress" in resolving its financial challenges.

"We will also continue engaging the rating agencies and the financial markets to address their concerns and improve investor sentiment and ultimately restore Eskom’s healthy liquidity position.”

Meanwhile, Eskom has put former chief executive Sean Maritz on “permanent” suspension.

Last week it placed Maritz on “temporary” suspension, pending his submission of a representation as to why he should not be suspended.

He was due to meet Hadebe on Tuesday. In a one-sentence statement, Eskom yesterday said Maritz’s temporary suspension had been converted to a permanent suspension, pending an investigation into allegations of impropriety.

Maritz’s fate has been the subject of speculation since allegations surfaced that, during his tenure as interim chief executive, he signed off on a R400million payment to a Hong Kong bank account.

This was allegedly a kick-back paid to secure a R25billion loan from China’s Huarong Energy Africa to build or refurbish power stations last year.

He also wrote the perplexing letter in which the old Eskom board - under the chairmanship of Zethembe Khoza - informed global management consulting group McKinsey that McKinsey’s contract with Eskom was lawful.

About-turn

Bizarrely, in the same letter, Maritz reportedly maintained that McKinsey should repay the R1bn paid to it in terms of the now “lawful” contract.

McKinsey this week said it was in the dark about Eskom’s motives for the about-turn.

“Eskom’s outside counsel, Bowmans, shared its investigation in October 2017 that concluded that Eskom executives had acted unlawfully by failing to secure the appropriate approvals from the National Treasury for the Turnaround Programme contract.

"McKinsey encouraged Eskom to pursue the court process by which to refund the fees,” a McKinsey spokesperson said.

The spokesperson said Eskom’s previous board informed it on January 16 that a subsequent Eskom investigation had found that the contract was in order and that there had been no wrongdoing by Eskom executives, “but it went on to suggest McKinsey, nevertheless, pay the money into Eskom’s bank account. Eskom has not shared the basis for this new conclusion.”