Eskom: Financial problems are leading to selling company stakes

Eskom: Financial problems are leading to selling company stakes

Financial problems at South Africa's Eskom have pushed the governing ANC to look into selling stakes in state companies to free up funds to update the utility and ease power blackouts.

President Jacob Zuma's African National Congress has long been reluctant to sell company stakes to ease the strain on the budget, for fear of upsetting powerful labour union allies who say this would cause job losses.

But state-owned Eskom urgently needs R250bn to upgrade its infrastructure and this has left the ANC, managing a national debt of 50% of gross domestic product, with little choice but to rethink the state ownership model it has followed since the end of apartheid in 1994.

While it has deferred giving details until the budget in February, it is considering relinquishing shares in listed firms such as mobile firm Vodacom and landline phone operator Telkom, in which it has a 51% stake, sources involved told Reuters.

It could also sell shares it owns through the state Industrial Development Corporation, which include 8.2% in petrochemicals firm Sasol worth $2.6bn, nearly $2bn in Kumba Iron Ore and a 1.6% interest in mining giant BHP Billiton that could fetch $1.1bn.

The government also has the option of selling part of freight logistics giant Transnet, arms manufacturer Denel, forestry firm SAFCOL, diamond miner Alexkor and troubled national airliner South African Airways (SAA.)

The government said in October it would sell "non-essential assets" to raise R20bn ($1.72bn) to inject into Eskom, which would use an existing state guarantee to borrow another R225bn, from the open market.

But analysts say it could raise more and more quickly than after the February budget as the government conceded this week Eskom only has enough money to operate until January.

"It really should not be taking this long (to sell assets) - through to the budget. These are such liquid assets that you could put a plan together in six weeks," said Nomura International analyst Peter Attard Montalto.

South Africa will increase diesel and gas imports and sign a private sector coal-fired power plant deal as it seeks to halt chronic electricity shortages, the cabinet said on Thursday.

The rand fell to its weakest level against the dollar in six years this week as a current account deficit and power shortages underlined South Africa's weak economic growth prospects, raising fears of credit downgrades.

A private sector-led coal-fired power plant programme will be launched by January 2015, which should add 2 500 megawatts of generation capacity, Minister in the Presidency Jeff Radebe told reporters.

The government also will announce on Monday details of 17 renewable energy projects, aiming at supplying an additional 1 000 MW, industry sources said.

Furthermore, Radebe said it would increase gas and diesel imports to supply under-fuelled power plants, which could add another 500 MW to 2 500 MW.

South Africa this month has suffered its worst power shortages since 2008 due to creaking infrastructure, power plant failures and emergency maintenance.

State utility Eskom warned that if it did not continue to implement rolling blackouts, the entire grid could collapse as it lost up to a third of its 42 000 MW capacity.

"The cabinet remains concerned over the disruptive effect the recent power outages are having on the daily lives of South Africans and its impact on households and businesses across the country," Radebe said.

The gas imports are expected to come mostly through an existing pipeline from neighbouringMozambique, although a liquefied natural gas (LNG) terminal also has been discussed.

"We are facing a massive crisis to the South African economy that is costing us hundreds of billions of rands in lost production," said Dawie Roodt, chief economist at Efficient Group.

"Clearly, what we have done up to now is not working, and I don't know if we are doing enough to turn the ship around."

Deputy President Cyril Ramaphosa will oversee the planned turnaround at Eskom and similar programmes for struggling state-owned South African Airways and the strike-hit Post Office.

Eskom, which supplies almost all the country's electricity, says it will have a funding shortfall of R225bn ($19.6bn) over the next four years.

Government said in October it would inject R20bn ($1.8bn) into Eskom and it could also convert its existing R60bn subordinated loan to state-owned equity.

But the sum is due to come from the sale of "non-strategic assets," privatisation that is sure to come under attack from President Jacob Zuma's far-left opponents and powerful trade unions.

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