ALU

Jabu Mabuza

Eskom ‘should consider selling’ Medupi, Kusile

Eskom should consider selling two coal-fired plants that rank among the world’s biggest to repair the state-owned utility’s finances, according to the head of South Africa’s biggest bank by market value. Original Link

Bloated Eskom facing looming ‘death spiral’

Bloated by debt, bled by corruption and battered by structurally declining sales, Eskom is facing what’s known in the industry as a “death spiral”. Original Link

Back to blackouts: SA in the dark as Eskom stumbles

Eskom’s warning that the country was threatened by months of rotating blackouts became a reality in less than 24 hours. Original Link

Brace for impact: Eskom cuts 2GW from the grid

Eskom will cut 2GW of supply from the national grid because it lost additional generating units overnight. Original Link

Eskom is broke, and you’re going to pay the price

Eskom is locked into a permanent loss situation and revenue is structurally limited. Expenses have ballooned due to inefficiencies, and electricity tariffs are not cost-reflective. Original Link

Eskom in ‘severe difficulty’ as interim profit plunges 89%

Eskom’s first-half profit plunged 89% and the situation at the South African state-owned power utility is likely to worsen in the next six months, chairman Jabu Mabuza said on Wednesday. Original Link

How much Telkom bosses are paid

Sipho Maseko

Telkom CEO Sipho Maseko earned total remuneration of R27.2-million in the 2018 financial year to 31 March, up from R25.9-million a year ago, the telecommunications group’s annual report, published on Tuesday, shows.

Maseko’s package was made up of just over R8-million in guaranteed pay, R7.6-million in short-term incentives, R12 000 in fringe benefits and R11.5-million in vested long-term incentive shares.

Former chief financial officer Deon Fredericks, who moved into the newly created role of chief investment officer on 1 July, was paid a total of R13.6-million, slightly up on last year’s R13.5-million.

Frederick’s package, however, is dwarfed by two former Telkom executives’ packages — ex-BCX CEO Isaac Mophatlane was paid R18.9-million, which included a separation package, while Attila Vitai, who previously headed Telkom’s consumer, mobile and small business division, took home a whopping R24.3-million.

Mophatlane’s remuneration included R8.2-million in fringe and other benefits, mostly made up of a separation package after he stepped down from BCX in July 2017. He also earned R8.6-million in vested long-term incentive shares.

Vitai, who resigned in March 2018, received a guaranteed package of R6-million, R4.6-million in short-term incentives, R10.5-million in vested long-term incentive shares and R3.2-million in fringe and other benefits. These benefits included a “notional” completion bonus, relocation benefits and leave pay. Vitai has returned to his native UK following his retirement.

Big earners

Other big earners include former group chief information officer Len de Villiers, who took home a total R14.3-million, former chief commercial officer Brian Armstrong (R13.6-million) and Openserve CEO Alphonzo Samuels (R10.5-million).

The total remuneration for prescribed officers was R113.2-million, a big jump from 2017’s figure of R69.1-million.

The executive management team, which consists of 44 members, received total remuneration of R164.8-million, down from R200.8-million in 2017, when the team consisted of 47 members.

Telkom chairman Jabu Mabuza was paid R1.3-million for his services. — (c) 2018 NewsCentral Media

Original Link

How much Telkom bosses are paid

Sipho Maseko

Telkom CEO Sipho Maseko earned total remuneration of R27.2-million in the 2018 financial year to 31 March, up from R25.9-million a year ago, the telecommunications group’s annual report, published on Tuesday, shows.

Maseko’s package was made up of just over R8-million in guaranteed pay, R7.6-million in short-term incentives, R12 000 in fringe benefits and R11.5-million in vested long-term incentive shares.

Former chief financial officer Deon Fredericks, who moved into the newly created role of chief investment officer on 1 July, was paid a total of R13.6-million, slightly up on last year’s R13.5-million.

Frederick’s package, however, is dwarfed by two former Telkom executives’ packages — ex-BCX CEO Isaac Mophatlane was paid R18.9-million, which included a separation package, while Attila Vitai, who previously headed Telkom’s consumer, mobile and small business division, took home a whopping R24.3-million.

Mophatlane’s remuneration included R8.2-million in fringe and other benefits, mostly made up of a separation package after he stepped down from BCX in July 2017. He also earned R8.6-million in vested long-term incentive shares.

Vitai, who resigned in March 2018, received a guaranteed package of R6-million, R4.6-million in short-term incentives, R10.5-million in vested long-term incentive shares and R3.2-million in fringe and other benefits. These benefits included a “notional” completion bonus, relocation benefits and leave pay. Vitai has returned to his native UK following his retirement.

Big earners

Other big earners include former group chief information officer Len de Villiers, who took home a total R14.3-million, former chief commercial officer Brian Armstrong (R13.6-million) and Openserve CEO Alphonzo Samuels (R10.5-million).

The total remuneration for prescribed officers was R113.2-million, a big jump from 2017’s figure of R69.1-million.

The executive management team, which consists of 44 members, received total remuneration of R164.8-million, down from R200.8-million in 2017, when the team consisted of 47 members.

Telkom chairman Jabu Mabuza was paid R1.3-million for his services. — (c) 2018 NewsCentral Media

Original Link

How much Telkom bosses are paid

Sipho Maseko

Telkom CEO Sipho Maseko earned total remuneration of R27.2-million in the 2018 financial year to 31 March, up from R25.9-million a year ago, the telecommunications group’s annual report, published on Tuesday, shows.

Maseko’s package was made up of just over R8-million in guaranteed pay, R7.6-million in short-term incentives, R12 000 in fringe benefits and R11.5-million in vested long-term incentive shares.

Former chief financial officer Deon Fredericks, who moved into the newly created role of chief investment officer on 1 July, was paid a total of R13.6-million, slightly up on last year’s R13.5-million.

Frederick’s package, however, is dwarfed by two former Telkom executives’ packages — ex-BCX CEO Isaac Mophatlane was paid R18.9-million, which included a separation package, while Attila Vitai, who previously headed Telkom’s consumer, mobile and small business division, took home a whopping R24.3-million.

Mophatlane’s remuneration included R8.2-million in fringe and other benefits, mostly made up of a separation package after he stepped down from BCX in July 2017. He also earned R8.6-million in vested long-term incentive shares.

Vitai, who resigned in March 2018, received a guaranteed package of R6-million, R4.6-million in short-term incentives, R10.5-million in vested long-term incentive shares and R3.2-million in fringe and other benefits. These benefits included a “notional” completion bonus, relocation benefits and leave pay. Vitai has returned to his native UK following his retirement.

Big earners

Other big earners include former group chief information officer Len de Villiers, who took home a total R14.3-million, former chief commercial officer Brian Armstrong (R13.6-million) and Openserve CEO Alphonzo Samuels (R10.5-million).

The total remuneration for prescribed officers was R113.2-million, a big jump from 2017’s figure of R69.1-million.

The executive management team, which consists of 44 members, received total remuneration of R164.8-million, down from R200.8-million in 2017, when the team consisted of 47 members.

Telkom chairman Jabu Mabuza was paid R1.3-million for his services. — (c) 2018 NewsCentral Media

Original Link

How much Telkom bosses are paid

Sipho Maseko

Telkom CEO Sipho Maseko earned total remuneration of R27.2-million in the 2018 financial year to 31 March, up from R25.9-million a year ago, the telecommunications group’s annual report, published on Tuesday, shows.

Maseko’s package was made up of just over R8-million in guaranteed pay, R7.6-million in short-term incentives, R12 000 in fringe benefits and R11.5-million in vested long-term incentive shares.

Former chief financial officer Deon Fredericks, who moved into the newly created role of chief investment officer on 1 July, was paid a total of R13.6-million, slightly up on last year’s R13.5-million.

Frederick’s package, however, is dwarfed by two former Telkom executives’ packages — ex-BCX CEO Isaac Mophatlane was paid R18.9-million, which included a separation package, while Attila Vitai, who previously headed Telkom’s consumer, mobile and small business division, took home a whopping R24.3-million.

Mophatlane’s remuneration included R8.2-million in fringe and other benefits, mostly made up of a separation package after he stepped down from BCX in July 2017. He also earned R8.6-million in vested long-term incentive shares.

Vitai, who resigned in March 2018, received a guaranteed package of R6-million, R4.6-million in short-term incentives, R10.5-million in vested long-term incentive shares and R3.2-million in fringe and other benefits. These benefits included a “notional” completion bonus, relocation benefits and leave pay. Vitai has returned to his native UK following his retirement.

Big earners

Other big earners include former group chief information officer Len de Villiers, who took home a total R14.3-million, former chief commercial officer Brian Armstrong (R13.6-million) and Openserve CEO Alphonzo Samuels (R10.5-million).

The total remuneration for prescribed officers was R113.2-million, a big jump from 2017’s figure of R69.1-million.

The executive management team, which consists of 44 members, received total remuneration of R164.8-million, down from R200.8-million in 2017, when the team consisted of 47 members.

Telkom chairman Jabu Mabuza was paid R1.3-million for his services. — (c) 2018 NewsCentral Media

Original Link

Eskom poses systemic risk to the SA economy

The author, Ian Matthews, says Eskom depends on government to service its massive debt load

Eskom published a JSE stock exchange announcement earlier this week warning its bondholders that there may be more bad news relating to irregularities when it releases its financial results for the year ended 31 March, likely to be released later this month. Eskom said disclosure on the quantum of the uncovered reportable irregularities and irregular expenditure would be published with the release of the company’s annual financial statements.

The company came dangerously close to having its bonds suspended by the JSE and to defaulting on debt and other obligations when the release of its interim financial statements for the six months to the end of September 2017 was delayed in January this year. After Eskom secured commitments of support from certain banks, its auditors issued an unqualified review but with an “emphasis of matter” on its ability to continue as a going concern for the next year to 18 months. Eskom’s liquid assets dwindled to R9-billion at the end of September from R30-billion the year before as a result of flat revenue caused by falling sales and lower-than-anticipated tariff increases.

The new chairman of Eskom, Jabu Mabuza, recognised at the time that the overriding problem at Eskom — apart from governance — was the company’s R360-billion debt burden. At the end of September 2017, its gearing ratio (debt to equity) had risen to 72%. Mabuza said that Eskom’s debt levels were simply “unsustainable”.

The latest announcement by Eskom raises serious concerns. Eskom spokesman Khulu Phasiwe explained that as part of the JSE debt listing requirements, Eskom had to inform bondholders about the looming disclosure of irregularities because its bonds were listed on the bourse. Is there more bad news coming? Eskom’s auditors qualified its results for the year ended 31 March 2017 because they could not express an opinion on the completeness of the irregular expenditure reported. Its auditors, SizweNtsalubaGobodo, also said that they had identified reportable irregularities in Eskom’s financial results for the six months ended 30 September 2017.

The Eskom announcement was made against the background of finance minister Nhlanhla Nene daring Eskom unions to table proposals on how the fiscus can foot the bill for wage increases when they meet with him. This was after the National Union of Mineworkers, Solidarity and the National Union of Metalworkers of South Africa had sought intervention from Nene and public enterprises minister Pravin Gordhan after they failed to reach an agreement on wage increase with Eskom earlier this week.

No money

Three weeks ago, Nene commented during an investor road show in the UK that there was no money to bail out Eskom to help the entity with the salary hikes. Speaking during the World Economic Forum roundtable, Nene said Eskom posed a serious challenge to attracting investment in South Africa. Former finance minister Gordhan warned earlier this year that major international investors refused to buy bonds from Eskom because of bad governance and rampant corruption. Goldman Sachs said in September 2017 that Eskom is the biggest single risk to South Africa’s economy.

Eskom depends on government support to service its R368-billion of debt. Eskom needs R72-billion of funding until the end of 2019, including the refinancing of a R20-billion loan obtained with a government guarantee, according to a March report published by Moody’s Investor Services. An Eskom default on its debt would be catastrophic for the South African economy as it would trigger cross defaults of all government debt.

Developments in the next few weeks will be keenly watched by international and South African investors alike.

  • Ian Matthews is head of business development at Bravura, an investment banking firm specialising in corporate finance and structured solutions services

Original Link

Eskom heads to court to demand higher tariffs

Eskom chairman Jabu Mabuza

Eskom chairman Jabu Mabuza was almost apologetic on Thursday when he told journalists that the utility is proceeding with a court review of energy regulator Nersa’s decision to grant it a mere 5.23% tariff increase for 2018/2019.

Eskom applied for 19.9%.

The increase has already taken effect and comes as Nersa concluded its public hearings in relation to Eskom’s application for further tariff increases to cover the R66bn it hopes to recover for under-recovery in past years.

Nersa is expected to announce its decision in this regard on 21 June. If granted, this would in itself add 2-3%/year for several years to the annual Eskom tariff determination.

Mabuza said Eskom does not consider the 5.23% increase granted for 2018/2019 to be cost reflective and will proceed with the legal action “in the next 10 days”.

In the meantime, the sheriff delivered the summons to Nersa that very morning, Moneyweb has learnt.

Mabuza almost made it sound as if Eskom has convinced Nersa that it was wrong, but could not revise its own decision. Court action would therefore be the only way to address the small tariff increase, he explained.

There are “no hard feelings”, Mabuza said, and Nersa “doesn’t take it personally”.

Whether Nersa and Eskom really are on the same page will only become clear when Nersa indicates whether it will defend the action.

Eskom was, however, far less conciliatory when it addressed the parliamentary portfolio committee on energy on 28 March.

Eskom then pointed out that three percentage points of the 5.23% increase will pass right through Eskom’s books to independent power producers from which Eskom is obliged to buy renewable energy. Only 2.23 percentage points of the increase would therefore be for the utility’s own benefit.

‘Mistakes’

Eskom further indicated that the Nersa decision contained numerous mistakes and inconsistencies.

It criticised Nersa for assuming that it could close two power stations overnight and save the associated coal and staff costs. In fact, Nersa announced its decision, with the recommendation to close two power stations, in December and assumed the cost savings from that would be realised in the financial year that started four months later in April.

That is unrealistic, Eskom explained. There are legislative processes to follow before this can be done.

Eskom further stated that contrary to its own methodology, Nersa used different reference points for different cost items. Some of these reference points date as far back as 2008.

It also pointed to some blatant mistakes Nersa allegedly made.

Mabuza said if successful, Eskom expects the court to send the matter back to Nersa to determine the correct tariff increase afresh.

It is unclear how long the review could take and, if it comes to that, what process Nersa would follow to redetermine the tariffs.

This move by Eskom is expected to once again increase the uncertainty among electricity users about the tariff path, something business has been complaining about and which is contrary to the very purpose of the Nersa methodology to determine tariffs.

  • This article was originally published on Moneyweb and is used here with permission

Original Link

Eskom keeps wage offer at 0%

Eskom has kept its pay offer to workers at 0% in a second round of wage talks as the South African power utility struggles to strengthen its balance sheet.

“We still are sitting where we are, at 0%,” company spokesman Khulu Phasiwe said by phone. “The encouraging thing, though, is both parties are willing to continue talks.”

The negotiations come as Eskom strives to improve the efficiency of its operations and rein in costs.

The utility began a process in April to sell a mortgage unit used to provide home loans to staff while Eskom chairman Jabu Mabuza was reported by Johannesburg-based Business Day as saying new appointments had been halted and that there would be no pay increases or bonuses.

The National Union of Mineworkers, which represents about 15 000 of the utility’s 47 000 workers, approached the talks by calling for Mabuza and Eskom CEO Phakamani Hadebe to quit. The union also said in a 5 June statement that the utility’s decision to sell assets will result in job losses.  — Reported Paul Burkhardt, (c) 2018 Bloomberg LP

Original Link

Eskom to tackle bloated workforce

Eskom chairman Jabu Mabuza

After a decade of unprecedented growth in staff numbers, cash-strapped power utility Eskom is finally tackling the controversial issue of its headcount.

State-owned Eskom, seen by Goldman Sachs Group as the biggest single risk to the South African economy, employed about 47 600 people as of March last year, compared to 32 600 a decade ago.

A bloated workforce means high costs for a company struggling with cash flow. But it’s stuck in a three-way tug of war between labour, which rejects job cuts, the ANC, which wants to boost the economy, and funders, who are leery of financing Eskom because of the way it’s been managed.

“We are currently rolling out a plan to manage our employee numbers to optimal levels,” Eskom said in an e-mailed response to questions, without detailing what that level might be. “We have implemented numerous levers to manage employee costs ranging from not replacing all attrition, efficiently managing variable employee costs, to re-prioritising training and development.”

Eskom’s financial woes are linked to allegations of corruption, weak demand, the rejection of many of its proposals for tariff increases and delinquent municipalities not paying their bills. Big staff costs have made an already bad situation worse.

A World Bank study in 2016 found that South African utilities pay workers more than double the norm in 35 other countries on the continent, with staff costs coming in at an average US$61 000 per employee per year. Eskom is potentially overstaffed by 66%, the report said.

“We have noted the World Bank study,” Eskom said. “The issue of Eskom staffing requirements versus the status quo has solicited views from a number of stakeholders.”

Staff costs also increased faster than consumer price inflation, which rose 84% over the 10-year period, while Eskom’s power capacity was 0.72MVA/employee, according to data in its latest annual report. That compared to 30.98MVA for every staff member at Power Grid Corp of India, that country’s largest transmission utility.

‘Very tough decisions’

“The new Eskom board and management are going to have to make some very tough decisions to slash employment costs,” Anton Eberhard, professor at the University of Cape Town’s Graduate School of Business, said in an e-mailed response to questions.

Since President Cyril Ramaphosa took over the leadership of the ANC and the country from his scandal-ridden predecessor Jacob Zuma, he’s overseen sweeping changes to the Eskom board. Jabu Mabuza, an outspoken Zuma critic, was named chairman in January. Newly appointed public enterprises minister Pravin Gordhan, whose remit includes supervising Eskom, said a permanent CEO should be appointed by April.

Eskom may default on debt if it can’t persuade investors to hand over an extra R72bn. It owes more than R12.2bn this year, according to data compiled by Bloomberg, with that figure rising to almost R44bn by 2021. To avoid insolvency, Eskom took a R5bn bridging loan and signed a R20bn short-term credit facility in February.

Management will have to scrap between 13 000 and 15 000 jobs, said Wayne Duvenage, CEO of the non-profit Organisation Undoing Tax Abuse, which has studied Eskom’s staffing, costs and asset valuations. “If Eskom gets its headcount right and removes the unnecessary higher-paid positions, it should be able to cut its annual salary bill by R10bn.”

Eskom will need all the money it can save after Moody’s Investors Service downgraded its credit rating again on 28 March, citing a lack of clarity regarding the power utility’s plans to stabilise its finances. Eskom’s acting CEO Phakamani Hadebe said the board was disappointed, but working hard to stabilise the company’s credit profile and improve its ratings.

With South Africa’s unemployment rate at 26.7%, unions are opposed to dismissals at the state utility. Corruption at the senior management level needs to be tackled first, according to Phakamile Hlubi, a spokeswoman for the National Union of Metalworkers of South Africa.

Mabuza said last month that Eskom’s debt-to-equity ratios were unacceptable at more than 70% compared to the benchmark of around 50%. Non-core assets, including a housing company, may need to be disposed of, he said.

“Some would say that Eskom has passed the point of no return,” Duvenage said. However, “it’s extremely important to our economy and the tax-payer that Eskom remains solvent. There is no doubt that Eskom needs to develop a different business model.”  — Reported by Renee Bonorchis, Paul Burkhardt and Loni Prinsloo, (c) 2018 Bloomberg LP

Original Link

Eskom looks to slash costs

Eskom chairman Jabu Mabuza

Eskom is reviewing its business, including staff numbers and possible asset sales, to find a way out of massive debt and develop a more sustainable model, according to its chairman.

The state-owned utility will hold a strategic session next week as part of an effort to address flaws that forced it to take a R5bn loan for the month of February to maintain essential liquidity levels.

“Our cost structure is definitely not right,” Jabu Mabuza, Eskom’s chairman, said in Cape Town, where he attended a Bloomberg conference. “We have to have to help the organisation to be structured with people, assets, funding in a manner that is appropriate.”

Eskom’s financial crisis stems from factors including weak demand, delinquent municipalities that don’t pay their bills and allegations of graft. The utility bought itself some breathing room this month by signing a R20bn rand short-term credit facility with a group of banks, but the issues remain. Mabuza was appointed chairman in January as part of an overhaul of the board as President Cyril Ramaphosa rose to power, promising better management of state-owned companies and a crackdown on corruption.

The business needs to address “unacceptable” debt-to-equity ratios, which are above 70% compared to the benchmark of around 50%, Mabuza said. It needs to look at disposing non-core assets, including a housing company it owns.

“When you don’t have money, you need to look at anything that is of value that you can sell,” he said.

The utility must to agree on a price path for renewable power from independent producers, he said. A government programme to diversify South Africa’s energy mix has been held up for more than two years since Eskom refused to sign agreements allowing the projects to progress.

“Whether it is human or office, everything needs to be looked at” in terms of cost, Mabuza said. He declined to give a target for how much the utility should reduce its current number of almost 42 000 employees, but said it will also be reviewed. “Benchmarked against our peers globally, Eskom is definitely employing too many people,” he said.  — Reported by Amogelang Mbatha and Paul Burkhardt, (c) 2018 Bloomberg LP

Original Link

Can Jabu Mabuza save Eskom? Time will tell

Eskom chairman Jabu Mabuza

Jabu Mabuza announced Eskom’s September 2017 interim results with self-assurance and style. Looking natty in a pink jacket, pale blue shirt and brown fedora, he raised confidence in Eskom by a couple of notches. As he spoke of rooting out financial mismanagement, malfeasance and corruption, it was easy to be pulled into a feeling of optimism that everything will be okay.

However, he is not the first highly experienced businessman to take on Eskom.

Bobby Godsell came out of retirement in 2008 to become chairman. He was CEO of AngloGold Ashanti from 1998 to 2007. Godsell resigned in November 2009, and reading between the lines, the reason was government interference.

At the time of Godsell’s resignation, Adam Habib, then deputy vice-chancellor of research at the University of Johannesburg, was quoted in the Mail & Guardian as saying: “It appears as though the authority of the board is being undermined. The corporate governance at Eskom seems to have been rocked very badly.” How right he was.

Eskom’s 31 March 2009 annual report announced that it was going to embark on a massive, five-year, R385bn capital expenditure programme. Looking further forward, it was planning to build 40GW of new generation capacity by 2025. It proudly proclaimed that this was the largest capital project in South Africa, and would have “large spin-offs through the awarding of contracts, investment by suppliers and purchasing of goods and services sourced from South Africa”. It also affirmed that “it continues to support procurement with black economic empowerment and black women-owned suppliers”.

Unfortunately, the promise of burning all this money on ambitious projects laid the organisation open to capture, price fixing and collusion. The darling of South Africa, with access to international finance and debt guaranteed by government, the power to structure capex, procurement, finance, insurance, or any contract, through any intermediary of its choice. What could go wrong? Perhaps when strings are pulled at the behest of its capturer?

Musical chairs

Jacob Zuma was sworn in as president on 9 May 2009. The Guptas, having met Zuma in 2003, were surely aware of the lush pickings. Malusi Gigaba was appointed minister of public enterprises in November 2010, taking over from Barbara Hogan. Brian Dames was appointed chief executive of Eskom on 1 July 2010. And so the stage was set for an unending game of musical chairs among the top echelons of Eskom executives.

Notwithstanding all the investigations into corruption, the Eskom financials indicate a frightening erosion of economic wealth and substance. For example, in 2011 Eskom had R37.8bn invested in securities. By 2017 this amount had been reduced to R6.7bn.

The liabilities of Eskom have been escalating at a rapid pace, and I am not sure if the assets are keeping up. Whereas Eskom has been progressing with its capital build programme, including running up unnecessary expenditure and cost overruns, it has ended up with property, plant, equipment and intangible assets of R614.2bn. However, an amount of approximately R99bn (16.1%) represents capitalised borrowing costs less accumulated depreciation (based on a depreciation period of between 50 and 80 years).

This is because international accounting standards require borrowing costs that are attributable to certain assets, including the acquisition or construction of manufacturing plants or power generation facilities, to be capitalised — in other words, added to the cost of those assets. This means that the capitalised borrowing costs will not be included in the finance costs that are deducted from income in the income statement, but are depreciated over the lifetime of the plant and machinery. Which, in the case of generating plant, would be 80 years.

In my view, in ascertaining whether an organisation is a going concern, which requires the assets to exceed the liabilities, capitalised borrowing costs should be deducted from the assets.

Another potential problem with the balance sheet is that the group holds complex derivative instruments for risk management (economic hedging). These instruments include foreign exchange contracts, cross-currency swaps, commodity forwards and credit default swaps. Whereas managing the risks in regard to a foreign exchange contract may be manageable, matters can go horribly wrong with credit default swaps. Valuing any of these instruments is also exceedingly complex.

For example, Eskom hedges electricity sales “in terms of agreements where the sales price is influenced by the market price of aluminium”. Now, Eskom hasn’t been running its day-to-day operations very well. Should they really be playing with such complex instruments? In 2009, the total amount of derivatives held for risk management on the asset side of the balance sheet was R1.8bn. In the September 2017 interim financial report this amount was R20.1bn. Should this valuation be checked? What have the profits/losses been on these complex instruments over the years? What would be the cost of unwinding these transactions? Could this be another epic failure waiting to happen?

Hence, three critical risk areas contained in the Eskom financials and what should be done are:

  • Property, plant and equipment: a third party valuation of property, plant and equipment should be undertaken. Further, the note to the financial statements in regard to the property, plant and equipment should disclose the total amount of capitalised borrowing costs.
  • A due diligence should be carried out on the derivatives held for risk management.
  • Ascertaining the total cost of recapitalising Eskom.

Will Jabuza and his new board have the strength and perseverance to get Eskom back on its feet? Time will tell.

  • Barbara Curson is a CA (SA) with postgraduate qualifications in tax and international tax
  • This article was originally published on Moneyweb

Original Link

Eskom wants lending taps reopened

Eskom is wasting no time approaching potential lenders in the hope that Saturday’s board overhaul was enough to ease concerns about governance at the struggling utility.

The company will ask banks for funding commitments to return its liquidity buffer to the required R20bn, spokesman Khulu Phasiwe said by phone on Monday.

Lenders had told the utility to address corporate governance issues before they would make additional funds available, while others had indicated loans may be recalled if allegations of corruption and concerns about liquidity were not addressed, he said.

Eskom, which hasn’t had a permanent CEO since late 2016, has been roiled by a series of scandals, including allegations of wrongdoing linked to the politically connected Gupta family.

Finance minister Malusi Gigaba has described the utility as his “biggest worry” and S&P Global Ratings said on 18 January that there was a “clear danger” that Eskom could default on its debt. The company is the largest recipient of state guarantees.

The new board announced at the weekend includes high-profile executives including Telkom chairman Jabu Mabuza, who was named chairman at Eskom, as well as Imperial Holdings CEO Mark Lamberti and former MTN Group CEO Sifiso Dabengwa. Executives who face allegations of corruption or other impropriety must immediately be removed, according to the government’s statement.

Mabuza cancelled his trip to the World Economic Forum in Davos, which he was due to attend with South African cabinet ministers and business leaders, to instead meet with the Eskom executive team on Monday, Business Day reported.

‘Clear message’

“We are hoping that the events that happened on Saturday are going to send a clear message to the market that Eskom and government are taking this issue of corporate governance very seriously,” Phasiwe said.

“The board has been given a fresh mandate that they need to move with speed on the issues that Eskom is facing.”

Chief financial officer Anoj Singh, who was suspended following allegations of corruption, submitted a formal letter of resignation on Monday, which the board accepted.

Yields on Eskom’s US$1.3bn on bonds due in February 2025 plunged 31 basis points to 6.26%, the lowest on a closing basis since 15 September. The rate on $1.8bn of debt due in January 2021 plunged 51 basis points to 5.45%.

While the appointments address corporate governance at Eskom, “it will need to be followed by quick action to shore up liquidity in the near-term before addressing the underlying long-term concerns,” said Elena Ilkova, a Johannesburg-based analyst at Rand Merchant Bank. These include Eskom’s business model and “unsustainable cost structure”, she said.

Eskom’s next immediate priority is to release its overdue interim results by the end of the month, Phasiwe said. The JSE said it is considering “a possible suspension” that would freeze trades on listed debt securities if the results are not published in January.  — Reported by Paul Burkhardt, (c) 2018 Bloomberg LP

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Telkom’s Jabu Mabuza to chair Eskom board

Jabu Mabuza

South Africa appointed a new board at struggling utility Eskom, with Jabu Mabuza becoming chairman, and ordered a new permanent CEO to be named within three months.

As well as the appointment of Telkom chairman Mabuza, the government recommended former Land Bank chief Phakamani Hadebe as the acting CEO, it said in a statement. The move, designed to strengthen governance and management, follows a meeting between President Jacob Zuma and other key ministers on Friday to address urgent challenges at the firm.

The utility, which is the biggest recipient of state guarantees, has been in talks with the government to improve its finances, with finance minister Malusi Gigaba describing it as his “biggest worry” as a collapse could potentially drag down the country. The utility’s woes have worsened as domestic power demand is the lowest in more than a decade and as South Africa’s finances buckle under lower tax revenue and rising debt.

“The company has been facing several challenges, including a weak financial position, declining revenues and governance failures, which are threatening the sustainability of the company going forward,” the government said in the statement.

S&P Global Ratings this week said there was a “ clear danger” of Eskom defaulting on its debt. Governance is among the issues that lenders have said the company needs to resolve before they make additional funds available.

“It’s really important in the short term to win back the confidence of the financial community,” Chris Yelland, an energy analyst and managing director of EE Publishers, said by phone. Particularly “in order to release funds, to roll over debt, for new bond issues that have really been delayed because of these governance problems”.

In addition to the board appointments and acting CEO recommendation, which will be ratified by the cabinet at its next meeting, the government also asked that a new permanent chief financial officer be named within three months.

Executives to be removed

The ruling party said it expects the board to immediately remove all Eskom executives who are facing allegations of corruption and other acts of impropriety. That includes Matshela Koko, who faced disciplinary charges related to conflicts of interest for payments made to a company linked to friends of Zuma. It also includes Anoj Singh, who was suspended following allegations of corruption.

Eskom’s Zethembe Khoza confirmed that he resigned chairman on Friday, Fin24 reported.

The board appointments “will go a long way towards rebuilding confidence in the leadership in our country and in our economy”, Cas Coovadia, the Banking Association South Africa’s MD, said in a statement.  — Reported by Thembisile Dzonzi, (c) 2018 Bloomberg LP

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Telkom shares plummet on government sale plans

Investors in Telkom gave its shares a dressing down on Tuesday in the wake of continued plans by the government to sell part of its shares in the fixed-line group to fund the bail out of cash-strapped South African Airways.

After touching a high of R59.79 on Tuesday morning, Telkom shares sunk to a 52-week low of R55.10 on the day, valuing the company at R31.2bn. Its shares fell by 7%.

At a press briefing hosted by national treasury and the Public Investment Corp to quell media reports that there was a plot to remove Dan Matjila as CEO of the PIC, the apparent looming sale of Telkom shares received a special mention.

Treasury director-general Dondo Mogajane government had approached the PIC to consider buying its Telkom stake in order to cover SAA’s funding gap of about R10bn.

Treasury and SAA are in talks with lender Citibank on how to settle a R1.8bn loan to the airline, which is due to be repaid at the end of September. In total, SAA has R6.9bn of debt maturing at the end of September, said Mogajane.

Matjila said the PIC would be keen to acquire a part of government’s Telkom shareholding but not its entire shareholding due to its “investment parameters”.

In other words, the PIC might not want to be too exposed to Telkom.

“Telkom is in our view a good asset. It’s well managed and we like it. If there is a seller of shares out there we would participate to an extent that satisfies our mandate requirements. We have parameters and we may not be able to take the full stake,” said Matjila.

The PIC is South Africa’s largest money manager and investor in the economy, with R1.8 trillion worth of assets under management on behalf of the Government Employees Pension Fund and other government funds.

Shares fall

It owns 11.9% of the fixed-line group, according to Telkom’s 2017 annual report.

The government owns a 39.3% stake in Telkom worth R12.3bn at the time of writing. The potential sale of the shares to bail out SAA was mooted on 23 August, when Telkom shares were quoted at R65.91, valuing government’s stake at R13.6bn.

Investor jitters about the pending offloading of shares has wiped off R3.5bn from Telkom’s market cap since 23 August and effectively reduced the value of government’s stake.

Malusi Gigaba

Telkom has already warned investors in a cautionary issued in August that the pending offloading of its shares by the government would continue to hit its share price.

Telkom is viewed as a crown jewel as CEO Sipho Maseko and chairman Jabu Mabuza have been largely credited with turning the company’s fortunes around over the last five years. Telkom is now a profitable company and is comfortably growing market share in a tough telecommunications sector.

The government has been criticised for using the proceeds from a cash-generative asset like Telkom to bail out a distressed, loss-making and mismanaged SAA.

The final recapitalisation of SAA would be unveiled next month during the medium-term budget policy statement, delivered by finance minister Malusi Gigaba.

The looming sale of Telkom shares is a similar strategy used by the government in 2015, when it sold its 13.9% stake in Vodacom to the PIC for an undisclosed amount. The proceeds were used to fund Eskom.

  • This article was originally published on Moneyweb and is used here with permission

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