Ramaphosa’s take on Eskom crisis was at the heart of SONA – economist

Acknowledging that Eskom’s finances are in dire straits was one of the most important issues addressed by President Cyril Ramaphosa in his State of the National Address on Thursday, according to FNB chief economist Mamello Matikinca-Ngwenya.
 
“Emphasis was placed on restoring Eskom’s operational and financial health,” said Matikinca-Ngwenya.

“The user-pay principle was heavily emphasised to support this endeavour. It remains to be seen how this will be implemented in areas where government continues to struggle to recoup outstanding municipal utility bills.”

According to Business Unity SA (BUSA) president Sipho Pityana, Ramaphosa’s pronouncements on Eskom are broadly in alignment with business’ view on how to deal with the crises engulfing the power utility, particularly the imminent appointment of a chief restructuring officer.

Lack of detail

BUSA urged Ramaphosa to publicly announce a clear timeframe, with milestones, for the implementations of recommendations regarding Eskom.

Rudi Botha, CEO of BetterBond, said he is concerned about the plans to accelerate the appropriation of the R230bn needed to bail out Eskom over the next 10 years.

“This will take more money out of the pockets of consumers, many of whom are already battling to make ends meet,” said Botha.

“A reliable power supply is, of course, essential for the economy to grow, but we believe the government should be looking to phase out coal-powered electricity and replace it with renewables from private sector providers as soon as possible, for the sake of the planet as well as the economy.”

The South African Chamber of Commerce and Industry (SACCI) welcome the decisiveness around resolving the capital and operational issues surrounding Eskom.  Like BUSA, it too wants to see how this will be funded.

For Peter Attard Montalto, head of capital markets research at Intellidex, there was “a surprising lack of detail on Eskom, which will disappoint both the energy industry and markets”.

“We understand that there was a breakdown in negotiations around future bailout and restructuring steps behind the scenes in the run up to the SONA, and so we got a least denominator outcome,” said Montalto.

“As we have said before there is a toxic mix of vested interests, status quo, SOE and developmental state view, entrenched positions and egos.”

Lucie Villa, Moody’s senior credit officer and lead sovereign analyst for South Africa, said SONA comes amidst first quarter GDP results indicating the sharpest quarterly contraction in the past 10 years; the February budget pointing to weaker fiscal metrics; and a higher government debt burden under the strain of support for Eskom. These underscore the credit challenges SA faces.