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Khaya Sithole @CoruscaKhaya
, 23 tweets, 8 min read Read on Twitter
So last week, the President announced a Task Team to assist in the @Eskom_SA crisis.

This team is made up of the names reflected in this picture Tweeted by @JacaNews 👇👇👇
This team will support the board that was put in place after Nasrec. And support the executive team that is slowly being assembled at #Eskom. It all sounds good but there are some strange issues we need to discuss. Starting with why this Task Team has been appointed.
Eskom is the single most important balance sheet in the country. Its assets were valued at R739 billion in March 2018. Most are fixed assets - the infrastructure used to provide electricity. But, being the biggest balance sheet comes with the need to fund it all.
#Eskom
And that's where it starts going wrong for #Eskom. It currently has R569 billion in liabilities. R93bn is due in 12 months. Which means that in that period, they need to sell enough to cover their daily costs plus another R93bn to deal with current liabilities. Do they have it?
Clearly not.
But if they have assets that can be turned to cash within 12 months they would be fine. Except they only have R72bn of such assets. So even if they turned them all to cash, they would be R21bn short.

In simple terms, the entity is in trouble. But it gets worse.
Of the R72bn in current assets, more than R8bn relates to municipalities that are not paying & the Soweto issue. The municipalities legally owe R11.9bn, but Eskom expects R7.8bn to be paid. That's 66% recovery rate - if Eskom is lucky enough to collect it.
Soweto customers owe R4.3bn; but Eskom has estimated that only R752m is recoverable- if they are lucky. So 83% of the Soweto debt is acknowledged as a pipe dream. But very few people expect even the R752m (17%) to be paid. Ironically, writing off the R752m won't make a difference
Municipalities and Soweto are just one exhibit of the #Eskom problem - the need to balance economics, politics and social mandates. In other words, whilst switching off defaulters sounds financially sensible, it is politically impossible. So Eskom can only live in hope.
In theory, #Eskom is entitled to over R16bn but will never get it. They now hope to get R8,6bn. If you look at who the defaulting municipalities are - you know it won't happen. The problem with this issue is the undocumented consequences of it all.
When #Eskom provides electricity and can't get paid for it they need to find the additional income from those who are paying right? So if Eskom had it Hadebe's way, the prices for all those who pay will creep up. And that's when NERSA comes in...
Monopolies of this nature (just like state airlines) are remarkably expensive to build and run. So in simple terms - only a mad businessman would ever create something like Eskom. But of course, governments are indeed crazy businesspeople so they create them (they have to).
The risk with monopolies is that since they have no competition, they can set any price they want and force you to pay. This is dangerous and so we have a regulator to keep them in line. In this case, NERSA is our Guardian angel. They are responsible for approving tariffs.
The conversation is predictable. #Eskom wants to charge as much as it can; NERSA wants the prices to be as low as possible. It goes back & forth until a meeting point is found. Eskom always hates that meeting point.
Unfortunately, this also created a credibility crisis for Eskom.
In every application, Eskom asks for absurd increases. NERSA always refuses. But Eskom is supposed to ask for what it needs to cover the cost of running its operations - not what it needs to get rich. So when 19.9% is the request it looks like extortion to the naked eye.
Over time, as the gap between the requested tariff increase and the NERSA verdict widens, Eskom runs the risk of no one taking them seriously in all future applications, which is not ideal. Now let's look at what happened 5 years ago in their application 👇👇👇
8% is high but at least one would know what to expect.

But Eskom didn't stick to the script. They need to explain what happened between then and now. In March 2018, their revenue was just R175bn. This is way below the R216bn.

What happened?
The NERSA process is an unusual one. Essentially #Eskom has to identify its costs. Then NERSA agrees/interrogates them. Once the costs are on the table, they are allowed to generate a return (call it profit if you must).

If Eskom doesn't know how to budget then we need to know.
Right now it's difficult to support #Eskom as their data, their projections and assumptions keep fluctuating. But when the new board was put in place we had hope. In hindsight the caveat was that their primary focus would be the governance issues primarily - which was necessary.
But is the team appropriately balanced between the governance & the operations? That is the mystery. The President's appointment of a task team suggests that he has noted that the technical focus is equally important. Their mandate bizarrely asks them to look at the strategy
If the Mabuza team committed to a strategy in 2018 I am intrigued how Ramaphosa has already decided that such a strategy needs another set of eyes to look into it. It is bad optics. What happens if this team decides on another strategy?
The other idea that has been mooted is that R100bn in liabilities should be moved from #Eskom to the general fiscus. I know a few board members are businesspeople. I would love to know if they would ever propose such a thing for their own businesses. It is strange actually.
The reason it is so strange is that the state has limited capacity to absorb any debt that doesn't come with an associated revenue stream. So such a thing will worsen the country's credit rating & guess what - #Eskom being our most prominent borrowers will be the first to suffer.
So it is troubling that a board of this stature would suggest this. It is a case of seeking to improve #Eskom's credit rating to the detriment of the fiscus. Unless of course there's more to the proposal. Next time I shall focus on what can be done to sort out Eskom.

I'm out.
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