Eskom wants to lay off 15 000 workers after burning through billions of rands

Date: Jul 05, 2018

State-owned power utility Eskom has been at the very centre of South Africa’s economic problems for at least a decade. These days, Eskom is not just a threat in terms of possible blackouts but also a major financial liability for the state and the single biggest threat that could take down the entire economy in one foul swoop with credit defaults. It’s debt levels are plainly unsustainable while its wage bill is out of control. Years of corruption have also eaten away at its balance sheet and income statement. It’s no wonder then that the new leadership team want to cut costs, with talk that 15,000 jobs could be on the line. The only problem is that management and its shareholder, government, recently buckled under pressure to unions’ wage demands at Eskom. So, if Eskom can’t even stand its ground on wages, how will it let go of 15,000 staff? – Gareth van Zyl

(Bloomberg) – South Africa’s cash-strapped utility is considering asking for extensions on some debt and staff layoffs as it grapples with its finances after years of burning through funds, according to people familiar with the matter.

Eskom Holdings SOC Ltd., which depends on government support to service its R368 billion ($27 billion) of debt, is evaluating a so-called liability management exercise as it seeks to implement a turnaround plan, said the people, who asked not to be identified because the matter is private. Management have discussed seeking to recover unpaid bills and increase tariffs to boost revenues by about 50 percent in four years and lay off about 15,000 workers, the people said.

Representatives for the company declined to comment on the debt extension proposal and said any headcount reductions would need support from stakeholders. Eskom is in the process of appointing financial advisers to “assist the company with possible balance sheet optimisation solutions,” they said in an emailed response to questions.

Eskom has been at the center of scandals involving the financing of transactions and awarding of contracts to firms linked to the Gupta family, who are alleged to have used their connections with former President Jacob Zuma to secure business and influence government appointments. Zuma and the Guptas deny any wrongdoing.

Debt due
The utility, which faces more than R62 billion due in principal debt payments in the next five years, has burnt through about R40 billion a year since 2013, according to data compiled by Bloomberg. The new management, brought in as president Cyril Ramaphosa took over leadership of the nation earlier this year, is struggling to pass measures aimed at improving its financial position.

The National Energy Regulator of South Africa gave Eskom permission to raise prices by 5.2 percent from April 1, far short of the almost 20 percent Eskom had applied for. The power utility implemented rolling blackouts last month for the first time since 2015 after protesters blockaded roads and attacked staff when wage negotiations broke down.

Workers have demanded a 9 percent annual salary increase annually for three years, while the utility had previously offered 5 percent. Eskom has since raised its offer.

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