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Government sells stake in Vodacom in order to raise funds for state power utility Eskom

On Wednesday, the South African National Treasury said that government has sold its 13.91% share in African mobile communications company Vodacom to the Public Investment Corporation (PIC) acting on behalf of the Government Employees Pension Fund (GEPF).

The money from the sale will be used to fund the ZAR23 billion ($2 billion) allocated to state-owned power utility Eskom.

Decision to sell

In June, South African Finance minister Nhlanhla Nene mooted an Appropriation Bill in Parliament to convert government’s ZAR60 billion ($5 billion) subordinated loan to power utility Eskom, to equity. This is in addition to the above mentioned ZAR23 billion ($2 billion).

According to Nene, by converting the subordinated loan to equity, Eskom’s balance sheet will strengthen.

The Treasury said in a statement that Parliament passed the Eskom Special Appropriation Bill to enable the appropriation and the Eskom Subordinated Loan Special Appropriation Amendment Bill for the conversion of the subordinated loan into equity last week.

Both the National Treasury and the Department of Telecommunications and Postal Services teamed up to see this transaction reach fruition.

“In arriving at a decision to dispose of its stake in Vodacom to the PIC, government undertook a market sounding exercise where numerous organisations presented proposals for raising the funding to be allocated to Eskom”, the National Treasury said.

The treasury did not reveal a deal value however based on Vodacom’s market capitalisation on the JSE (the largest stock exchange in Africa) on Tuesday, the share is valued at ZAR28.7 billion ($2 billion), fin24 reported.

Raising funds

According to the National treasury, government considered various options including the sale of listed shareholdings it holds directly, the disposal of listed stakes held indirectly through Development Finance Institutions (DFIs), the sale of government’s unlisted shareholdings in state owned companies (SOCs) or their subsidiaries, the ring-fencing and sale of assets held by SOCs and the sale of other assets, such as property, owned by the state.

The National Treasury said that the sale of governments Vodacom stake was the most viable for ensuring that the state was able to realise the proceeds and inject equity into Eskom to bolster the utility while simultaneously ensuring government was still able to deliver on its strategic objectives.

The PIC’s offer to Government was in line with pricing quoted by other institutions when taking into account the large size of the stake and also provided the added benefit of keeping the shares within the broader family of public sector-related institutions.

NERSA delivers decision

This news follows the National Energy Regulator of South Africa’s decision to decline Eskom’s selective reopener of the third multi-year price determination (MYPD) for Open Cycle Gas Turbines (OCGTs) and Short-term Power Purchase Programme (STPPP) and the increase in environmental levy, asking for a 25.3% tariff hike.

The 25.3% includes the already approved 12.69%, 10.1% for OCGTs and the 2.5% change resulting out of the environmental levy at ZAR0.2 per kWh.

Eskom’s selective reopener application requested cost recovery of ZAR32,9bn for OCGTs and ZAR19,9bn for the STPPPs.

Last week, NERSA held a two day public hearing in Johannesburg, where members of the public were invited to express their views and opinions on the power utility’s selective reopener.