OPINION: The new state capture

The offer by Cosatu to bail out Eskom to the tune of R250 billion seems to be gaining favour with the power brokers in the ANC, but before anybody gets too euphoric about the prospect of Eskom being rescued, there are a number inconvenient facts which need to be confronted.

The money will come from the government employees pension fund (GEPF) equity investment with the Public Investment Corporation (PIC), but it is unclear how the deal will be structured. If it is in the form of a loan, there will be conditions like interest payable, repayment terms, and penalties, in the event of default.

Considering the state of Eskom’s finances and the condition of its ageing generation fleet, coupled with the uncertainty over what Nersa is likely to grant as a tariff increase (on Monday the North Gauteng High Court dismissed Eskom’s application for tariff increases of 16.6% in April, and 16.7% in 2021, but that fight is ongoing), the utility’s ability to service the debt is questionable.

If consumers can’t (because of load shedding) or won’t (because of the cost per Kw/* ) use electricity, from whence will come the much-needed revenue?

The GEPF is a defined benefit fund, which means that pensioners are entitled to a minimum monthly pension based on their final monthly earnings.

If the PIC’s investments (and Eskom’s loan) do not perform adequately, the government, as guarantor of last resort, will have to cough up, using tax payers money, which makes Cosatu’s offer something of a red herring.

Whether government gives the bailout money directly to Eskom, or by acting as guarantor to the PIC loan, the taxpayer will still end up carrying the can.

Considering the shrinking tax base and concomitantly declining revenue collection, this will pose something of a challenge for Finance Minister Tito Mboweni and the Treasury, who will have to find both the rabbit, and the hat, out of which to pull it.

The other possibility is a domestic bond issue, which will also have financial performance requirements that require sufficient revenue to service the debt, and to ultimately repay the bond upon redemption.

by way of example, the
R20 billion Eskom E170 domestic bond, issued in April 1992, has a 28-year term with an interest rate of 13.5%, and is redeemable in three equal tranches in August 1 this year, August 1 2021 and August 1 2022.

The third, and more intriguing possibility, is an equity investment by the PIC, which would effectively become a shareholder, posing an interesting conundrum for the labour federation, which is well-known for demanding a say in the business decision-making process, but has no appetite for accepting the accompanying risk.

SAA is a fine example of this contradiction, with the affected unions having a major toy-toss (handily supported by President Cyril Ramaphosa) because the business rescue practitioner, in an attempt to rescue the terminally ill national carrier, has decided to cancel a number of unprofitable routes.

Without putting too fine a point on it, both the unions and Mr Ramaphosa should understand that you cannot run with the hare while hunting with the hounds.

Were the bailout to come in the form of an equity investment by the PIC, (on behalf of the GEPF, and by extension, Cosatu), if the investment does not perform adequately, government – ie, the taxpayer – will still be in the hole as guarantor.

Cosatu’s initial terms and conditions for this bailout were quite simple – privatisation and retrenchments are permanently off the table, but over the weekend, it suggested another condition when it called for the implementation of prescribed assets for private and public pension fund equity investments. But here’s the thing: if government were to enact such legislation, the clause making government guarantor for such private prescribed asset investments in public enterprises, would, of course, be missing.

But the real elephant in the room is this: aside from the terms and conditions Cosatu has demanded in the public domain, what else it is demanding of government, in return for solving (sort of) Mr Ramaphosa’s single biggest problem?

The obvious answer is a far greater say in ANC policy than it currently enjoys, and who knows where that might end?

The pushback brigade in the ANC, is already characterising those who won at Nasrec, as the new state capture(rs), but what does that make Cosatu if it manages to persuade the ANC to accept this loaded deal?