Eskom was contemplating applying for a bank loan to cater for its immediate need for diesel to keep the lights on until the end of March, the power utility said yesterday.
The bank loan was likely to add another financial burden on the power utility as it would need to pay more interest because of its weak financial position, according to economists.
Eskom confirmed to Business Report that it was in the process of applying for a R4 billion short-term loan to sustain its diesel operations.
Khulu Phasiwe, an Eskom spokesman, said the utility had not had any response from the government regarding its application for short-term relief.
“We will apply for a loan from the bank,” he said, adding that it should not be a long process.
It was earlier reported that Eskom would run out of money by mid-February. Its financial year ends in March.
The utility has spent R2 billion a month on diesel supplies after deciding to ramp up its use of gas turbines since October, as some of its coal fired power stations have been experiencing technical faults.
Chris Hart, an Investment Solutions economist, said it should not be difficult for Eskom to get a R4bn loan. But he questioned Eskom’s need for the money. Diesel was not the solution for Eskom’s long-term problems, he said.
“If you borrow money to buy a car or a house, it is a big expensive capital (spend). It is understandable. But if you borrow money to buy groceries that is not particularly wise as it is a short-term operating cost. Eskom is borrowing money to buy groceries,” said Hart.
Eskom was not going to default on a simple bank loan, according to Hart.
“Diesel prices have been going down; electricity prices have been going up. How the hell are they not making a super profit? We’ve got to see how Eskom puts its operating efficiency on line,” said Hart.
Nene hopes
Investors, big business and consumers are eagerly awaiting Finance Minister Nhlanhla Nene to outline Eskom’s rescue plan when he tables his budget next week.
President Jacob Zuma said in his State of the Nation address that the government would inject R23bn into Eskom to plug the utility’s funding gap of up to R225bn.
Iraj Abedian, the Pan-African Investment & Research chief economist, said the cost of such borrowings was bound to rise as the market learned of the depth of Eskom’s financial woes.
“Even with government guarantees the utility is facing a rising cost of borrowing as its internal financial management systems leave much to be desired,” said Abedian.
Mike Schussler, the chief economist at Economists.co.za, said Eskom was likely to get a loan within weeks, but would pay a high interest rate relative to its existing borrowings.
Funds
Eskom has not exhausted all of its government guarantee of R350bn. So far it has drawn up to R126bn, meaning it is still left with about R224bn that it could raise through state guarantees, according to a Moody’s Investors Service report.
Phasiwe said the utility was getting about R10bn monthly in revenue and might also consider taking from that money to close the current gap.
Raising tariffs
The national energy regulator had permitted Eskom to continue to buy diesel to fire its turbines and then recoup the money later through tariff increases.
Jabulani Sikhakhane, a National Treasury spokesman, said Eskom reported to Public Enterprises and any application they made would come through via that department.
However, Colin Cruywagen, a Public Enterprises spokesman, said he was not aware of any short-term bailout request from Eskom.
“As far as I know, Eskom’s issue of buying diesel was resolved when Nersa (the National Energy Regulator of South Africa) gave them permission to buy diesel and recoup the money afterwards,” said Cruywagen.