South Africa’s President Ramaphosa believes state utility Eskom can turn the tide

South Africa’s struggling power utility firm, Eskom plans to release a turnaround strategy that would stabilize the company and make it profitable.

At the World Economic Forum (WEF) taking place at Davos, South Africa’s President Cyril Ramaphosa told delegates that the company will release a turnaround strategy in the coming weeks. He noted that the government had changed the boards and executive management in strategic state-owned entities, including Eskom, and that the government was working closely with the new leadership, particularly at Eskom, on the implementation of credible turnaround strategies.

“We are currently developing a response to the financial and operational crisis at the country’s electricity utility, Eskom. In the next few weeks, we will be announcing a set of measures to stabilize and improve the company’s financial position and to ensure uninterrupted energy supply,” he said.

Eskom is in deep financial crisis and is unable to pay the interest on its R419 billion debt out of the revenue it generates. In December 2018, Eskom sought a bailout. The company requested that the government take on R100 billion ($7 billion) of its debt.

Currently, the power utility is acknowledged as the single biggest risk to South Africa’s economy by the Treasury, credit rating agencies and the investment community. The increasing debt and corruption scandals made investment bank Goldman Sachs to declare Eskom the “biggest risk to South Africa’s economy.” The company had R413 billion in debt and plans to raise an additional R340 billion ($26 billion) by 2022; 8 percent of South Africa’s GDP.

The restructuring of Eskom, including a substantial debt bailout and its separation into three parts, was put to the ANC Lekgotla on Saturday as the first step towards dramatic changes to save the company. ANC Lekgotla is an annual gathering of South Africa’s ruling party, the Africa National Congress (ANC). The event is held twice a year.

The Lekgotla was briefed by a task team of experts established by Ramaphosa to guide the government on a way forward for the company. The president explained that this is part of South Africa’s drive to undo the rot of the last decade.

“After almost a decade of economic stagnation and political paralysis, we have begun to turn things around. We have entered a new period of hope and renewal, and over the last year have taken decisive steps to correct the mistakes of the recent past and put the country back on the path of progress that we embarked upon in 1994,” he said.

According to the president, foreign direct investment into the country had increased by more than 440 percent between 2017 and 2018, from $1.3 billion to $7.1 billion. These increased investment in the country, according to Ramaphosa, are a result of the government’s economic reforms in sectors that have great potential for growth. “That is a huge increase and it follows in the wake of the changes we are effecting in our country and the reforms we have embarked on,” he said.