5 May 2010 – Eskom will face a total shortfall of R190-billion between now and 2017, despite a large World Bank loan, its financial director Paul O’Flaherty said on Tuesday.
Eskom faces a R111-billion shortfall over the next three years to implement its build programme, he told Parliament’s portfolio committee on public enterprises.
The company needed the money to complete its new power station at Kusile, which was vital to meet electricity demand forecast to recover apace with the economy, said O’Flaherty.
"In the next three years we really have a problem with funding," he said.
"The unsecured funding as we sit today is R173-billion and year by year also results in a cumulative shortfall of R17-billion, so the actual shortfall is R190-billion over seven years."
Eskom mulling "50 options"
Acting Eskom chief executive officer and chairman Mpho Makwana and O’Flaherty said Eskom was mulling "50 options" to make up the shortfall in coming years, but conceded that beyond 2017 there was no gameplan.
Eskom’s reserve margin of supply is expected to dip below 15 percent between 2018 and 2023 following the decommissioning of old power stations like Hendrina and Arnot.
Documentation provided to MPs showed that it would need to produce an additional 8184 megawatts between 2017 and 2020 with no clear idea yet as to how.
O’Flaherty said that if Eskom had to ensure it continued as a going concern and remained solvent with such a large shortfall, it needed to find another method by which to fund new technology.
Eskom’s representatives were rebuked by committee chairwoman Vytjie Mentor for still not having finalised a funding model.
A bigger loan than $3.75-billion
MPs wondered why the utility had not asked the World Bank for a bigger loan than the $3.75-billion approved in April.
O’Flaherty said the company started negotiations with the bank more than 18 months ago, before it knew that the national energy regulator Nersa would reject its application for tariff increases of 35 percent a year.
Instead, Nersa approving hikes averaging 25 percent a year for the next three years.
O’Flaherty assured MPs that Eskom was "far down the track on finding solutions" to cash woes for the next three years.
These included saving money on personnel, which could come to some R4-billion or more, by controlling overtime and improving productivity, which he conceded was not optimum.
Underwritten R176-billion in debt
O’Flaherty told reporters that Eskom would like the government, which has already underwritten R176-billion in debt for the company, to give it further guarantees.
"That would be a definite benefit for Eskom because it would enable you to raise more guaranteed money."
He said Eskom did not want to "saturate the local bond market" and rejected suggestions that the utility approach the Industrial Development Corporation as it was not in a position to give anybody a loan of more than R2-billion.
Makwana said Eskom had enlisted international financial services group Credit Suisse to finalise an equity model for Kusile, and JP Morgan to help conclude a broader funding model for Eskom.
Both companies were contracted in April and given 60-day deadlines, which meant their proposals would be submitted in June.
Makwana dismissed criticism from MPs and a handful of environmentalists who gatecrashed the meeting about Eskom’s continued reliance on coal, but added that the company’s mid-term aim was to cut the percentage of total power output derived from coal from 85 to 70 percent.
"Coal is our immediate reality," Makwana said.
"In the end, it is matter of rands and cents and dollars," he said, and argued that coal in the southern hemisphere contained less sulphur and therefore contributed less to global warming.
O’Flaherty acknowledged that Eskom would be unlikely to secure further funding from the World Bank for coal-fired plants.
He told reporters Eskom would get its first instalment of the World Bank loan in July, to pay for construction already completed.
He insisted that the public could rest assured that none of the World Bank funding would be used to cover work by Hitachi Power Africa, in which the ANC’s investment arm Chancellor House holds a 25-percent stake.
Under the terms and conditions of the loan, Eskom will present the World Bank with invoices for completed work and only then will the bank release the money to pay, he said.