Eskom challenges and solutions: stakeholder engagement

Meeting report

Opening remarks
The Chairperson said the Committee was interested in hearing from the stakeholders who included people from the business sector and expert researchers. It was important to get solutions and not to only focus on the complaints and problems. The Committee would carefully consider the input from the stakeholders and warned that they should not harbour any personal feelings should Members disagree. Although Members held divergent views, they all had an interest in the success of this state owned enterprise. Apologies were received from Business Unity South Africa (BUSA) and South African Federation of Trade Unions (SAFTU) in response to invitations to make submissions.

Congress of South African Trade Unions (COSATU) on Eskom intervention proposals
Mr Matthew Parks, COSATU Deputy Parliamentary Coordinator, said Eskom played a central role in the economy. There were 44 000 Eskom workers and all economic sectors, workers, families and pensioners depended upon Eskom. There was a huge risk of Eskom collapsing and a Moody's downgrade. COSATU had made submissions to the Alliance Political Council, the ANC government and Nedlac.

Mr Parks detailed the crisis faced by Eskom. It had R454 billion debt. Load shedding continued to threaten all economic sectors. The unaffordable tariffs impacted upon workers, pensioners, mining sector and other industries and SADC. The reality was that the Eskom debt threatened the survival of the state and national sovereignty. An urgent plan was required. A social compact between government, labor, business and community was necessary as the national interest was a priority.

COSATU provided three options and consequences:
Option 1: Continue as is and guarantee the collapse of Eskom resulting in economic catastrophe.
Option 2: IMF bailout and resultant austerity impositions on workers, pensioners, state and economy and subsequent economic depression.
Option 3: Social compact between government, labour, business and community to invest in and clean up Eskom to allow it and the economy to heal and grow.

COSATU was in favour of Option 3. Public and private financial support needed to be given to Eskom. The R254 billion needed to be erased from Eskom’s R454 billion debt book. What was required was public sector investment by the Public Investment Corporation (PIC), the state, the Development Bank of Southern Africa, Industrial Development Corporation, and other development finance institutions (DFIs) and the Sector Education and Training Authorities (SETAs). Added to this would be investments by private sector investment funds. PIC would invest through government guaranteed bonds. PIC would have equity stake options in Eskom and representation on the Eskom board as an equity partner. The financial support would be released in tranches as Eskom implemented the agreed turnaround plan. Eskom also needed a debt structure review. There had been positive responses from the private sector which was welcomed.

A social compact between government, labour and industry is needed to stabilise and save Eskom. It must be premised upon the following fundamental principles:
• No worker will be retrenched.
• Eskom will not be privatized.

A pro-worker Eskom turnaround plan must include a debt package to reduce Eskom’s debt from R454 billion to R200 billion through a special purpose vehicle (SPV) involving a social compact between government, the PIC and DFIs. It is critical to understand that this is not a blank cheque or a donation. It is tied to the following conditions:
- The arrest, prosecution, confiscating assets and imprisonment of those who had looted.
- Dismissal and freezing of assets of managers who had broken Eskom.
- Comprehensive forensic public audit of all Eskom contracts, expenditure and debt.
- Deal with Eskom managers etc. who have had corrupt and illegal tenders at Eskom.
- Appoint worker representatives to the Eskom Board.
- Placement of Political Officer Bearers’ Pension Fund under the PIC.
- Appoint a dedicated unit to cut illegal connections and arrest offenders.
- Conduct coal supply quality assurance and inspections.
- Coal suppliers whose prices have been criminally increased by up to 400% be slashed and affordable.
-  Independent power producers (IPPs) tariffs be compelled to be market related and affordable for Eskom.
- Investigate insourcing of maintenance contracts.
- All electricity must be pre-paid, especially for government, SOEs, municipalities and business.
- A single payment account established where all consumers paid directly to Eskom.
- A review of the municipal funding models.
- A immediate debt recovery plan for defaulting departments, SOEs, municipalities and business.
- Treasury to deduct outstanding monies owed to Eskom by all departments, SOEs and municipalities.
- Mass community Masakhane payment campaign be undertaken in key areas.
- A comprehensive maintenance plan.
- Eskom tariff hikes to be reined in.
- Eskom tariffs to be made affordable for consumers, economic growth and neighboring states.
- Increased allocation of free electricity for registered indigent homes.
- Eskom mandate expanded to allow it to produce and own its own renewable energy generation capacity.
- Investment in renewable energy battery storage capacity.
- Extension of life span and or conversion to gas of power stations nearing decommissioning.
- Invest in clean coal technology.
- Slash bloated management and management perks.
- Head count and skills audit of Eskom staff to determine shortages and surpluses.
- Reskilling of workers as needed.
- Insourcing of outsourced contracts.
- Engagement with labor at the collective bargaining unit at Eskom.
- Engagements between government, PIC, labour, business on investments that protect pension funds.
- PIC/GEPF housing scheme for missing middle public servants.
- Nedlac Presidential Working Committee engagements
- Monthly reports by government and Eskom on interventions and turnaround plan implementation.
 
Prof Eberhard, Powers Futures Lab, University of Cape Town (UCT) Eskom challenges & solutions
Prof Anton Eberhard explained that Eskom’s financial performance continued to deteriorate. Eskom was insolvent: it was too large to fail and too large to continue bailing out. It had a pre-tax loss of R29bn for FY19 which was the largest SOE loss on record. Debt service cover ratio for FY19: <0.5. Eskom generated less than half of the cash it needed to service interest and it was in a debt trap borrowing to repay its debt. The state bailouts were completely unsustainable. Municipal debt arrears were out of control (see graph).

Prof Eberhard suggested some critical interventions. The following needed to be prioritised by CEO:
- Strengthen operational capabilities, restore maintenance
- Income statement: Revenue enhancement: NERSA tariffs; Municipal debt arrears & Compression of coal and payroll costs
- Balance Sheet: Debt relief and refinancing
- Eradicate corruption.              
- Eskom to be divisionalised.
 
There also needed to be power sector and regulatory reforms:
- Unbundling: Start with separate transmission SOE and Power planning, procurement, contracting
- Regulatory Reform: Licence exemptions for self-generation (any size); municpalities; - <10MW if selling
- Fast-track licences: - Direct deals + wheeling?
- IRP Procurements: Emergency; - REIPPP 5 + Gas

There were three proposals for debt relief and refinancing of Eskom:
- Status quo (on-going equity injections)
- Direct fiscal debt take-over (a portion or all of it)         
- Dedicated refinancing mechanism (SPV).
 
Prof Eberhard said that the SPV re-financing mechanism was the best solution. The benefits of restructuring Eskom (as generation, transmission and distribution are very different businesses) are:
Improved management and operational focus; ring-fences financial contagion
- Improved cost transparency
- Linked to refinancing: transmission will quickly return to investment grade and capital markets; generation business will need to be restructured
He noted that 106 power utilities globally have unbundled.
 

There were two restructuring routes to choose from
- The first proposed by Eskom was ineffective. It involved slow Eskom-led functional unbundling “divisionalisation” followed by legal separation after 3-5 years. It was not transparent and could easily be reversed. It was not linked to debt restructuring.
- The second more favourable route was the DPE/Cabinet Roadmap. That would involve the creation of a shell Transmission System Operator subsidiary with its own board to drive migration of people, systems, assets and debt into the new company. Once operational, it would be taken out as an independent company. That would demonstrate immediate progress and would create reform momentum. That would be followed by Distribution restructuring.

He illustrated how costly load shedding has been for the economy between 2007 and 2020 (see graph).

He also advised that a global energy transition was underway. Renewable energy IPPs will soon be less expensive than half Eskom’s average cost of supply: Bid prices in expedited round were 62c/kWh. Round 5 will be below 40c/kWh. Eskom’s average selling price is now 106 c/kWh

In conclusion, Eskom’s debt trap would need to be resolved soon. The entity would not be able to keep the lights on by itself. The establishment of Transmission System Operator would facilitate new power investments. Regulatory reforms would free up distributed electricity generation. The energy transition was economically inexorable: accelerated innovation in disruptive power technologies, services and markets were shifting and upending relative prices, resource shares, and the location and pattern of energy production and use

Energy Intensive Users Group (EIUG) submission
Mr Nic Dawson, EIUG Group Technial Specialist, said the EIUG as a voluntary, non-profit association of 29 energy intensive consumers whose members currently account for over 40% of the electrical energy consumed in South Africa. EIUG has significant technical expertise on energy matters. It is a respected and non-partisan organisation dedicated to working towards a sustainable electricity supply industry.

The focus areas of the EIUG were:
- Quality of Supply: the EIUG engaged with suppliers to ensure that the supply of energy adhered to the prescribed standards.
- Reliable Supply: the EIUG was dedicated to working with the relevant stakeholders to ensure the uninterrupted supply of energy.
- Affordable Energy: internationally competitive energy tariffs that were affordable and sustainable.

The problems of Eskom were identified as:
• The long periods of historical neglect of maintenance had taken its toll on the aging generation fleet – age was not seen as a specific issue, but the lack of diligent care and maintenance was.
• The underperformance of the New Build Fleet was a pressing challenge. There was a need for an urgent and highly effective maintenance program which included a rapid and extraordinarily innovative fix for new-builds which was essential – but supply could not adequately cover demand. Thus, there was questionable ability to satisfy the ‘fix’ and ‘supply’ criteria simultaneously.
• Eskom was in a precarious position with tariff structures that it claimed to be inadequate and it had a vast debt burden. It was no longer a sustainable business and the MYPD methodology could no longer be used to regulate a technically insolvent business.
• Eskom’s costs were out of control and its proposed cost increases could not be afforded by consumers.

The EIUG offered possible solutions:
- The cost and tariff structures were vital and had to be considered in an innovative way, beyond the current tariff structures. Current tariffs for large power users contained a significant element of cross subsidies – depending on the location and off-take this could be 14% of the cost of electricity. In the face of likely closure of many of these operations and under circumstances that would not yield the subsidy revenue to Eskom, alternatives had to be considered and implemented for large power users.
- On the extended maintenance program, EIUG has offered Eskom assistance in the planning phase so as to coordinate outage periods with major industrial shutdowns. That was seen as a key aspect in ensuring disruptive load shedding was minimized.
- Likely regional and at least partly bilateral approach to individual large consumers, the benefits to Eskom, the consumers and the economy were obvious. However, that would not make up the full block of indicated load curtailment/ shedding by any means.
- Some large industrial consumers had offered demand reduction on a longer-term basis which had to be considered in the maintenance program that was intended. Close bilateral collaboration was required
- EIUG recommended that NERSA and the relevant government departments establish a revised and long-term pricing strategy to better ensure the sustainability of the EI sector. That had multiple elements but required urgent attention. It could start with an expeditious short-term support framework.
- Eskom had to address cost cutting and challenge its developmental mandate to reduce costs while ensuring that effective maintenance and fix programs were adequately funded.
- The Department of Public Enterprises should ensure Eskom restructuring prevented the drain of necessary funding from Transmission and Distribution.

OUTA submission
Ms Liz McDaid, on behalf of OUTA, said OUTA became aware of the meeting only at short notice and wanted to give input. She apologized for not having prepared a PowerPoint presentation. She offered the 100-page document submission that was currently being made to the Finance Portfolio Committee on the budget. The document contained factors pertaining to Eskom. As a civil society organisation, OUTA had a slightly different perspective from COSATU, business and other experts who had presented.

A critical point was energy was the driver of the economy, but Eskom made up only one part of the economy. OUTA would like to see more focus on the energy system to ensure there was energy security for all. Ms McDaid felt there was a lack of focus on efficiency: if energy was consumed efficiently the load on Eskom would be relieved. She pointed to the R100 million wasteful expenditure in the Department of Energy budget that occurred through the storage of solar water heaters that were not rolled out to households. That would have taken some of pressure off Eskom and albeit it a small amount it was the little steps that were important.

Another critical fact was how Eskom determined the numbers – a searchlight needed to be shone into the depths of the Eskom technical team. To this point she gave examples. Despite the fact that for the last six years various municipalities had indicated that their demand for electricity was lowering such as in the Eastern Cape, these factors had not been taken into account by Eskom when calculating electricity demand and consequently the revenue. By getting those basic calculations wrong, every year Eskom projects shortfall revenue figures. The pricing system was also wrong. That demonstrated a need for structural reform so that Eskom was forced to do its due diligence. OUTA believed this was happening either due to gross incompetence or corruption. Since 2020 was the year of the Orange Overalls, hard questions needed to be asked about how the technical team calculated their numbers. Anyone who may have deliberately manipulated figures should be removed from the entity.

Ms McDaid highlighted poor households. The impact on rich and poor households was not the same when tariffs increased. The HSRC study from a few years ago showed that the impact on poor households was six times the impact on a rich household. Therefore, adjusting the tariffs to make more money to bail out Eskom was not sustainable. It caused increasing hardship. It also related to municipal debt. Municipalities had been making the point people could not buy electricity as it was too expensive so there was no revenue to pay Eskom. The result was a downward spiral at municipal level as well as at Eskom. There needed to be high level discussions about how the electricity supply industry operated, from where the revenue came and how it was derived. There needed to be a shift from the assumption that people could pay. OUTA had observed over time that Eskom repeatedly held the public at ransom by threatening to switch the lights off if tariffs were not increased. The situation was dire.

On the unbundling of Eskom, Ms McDaid indicated that OUTA welcomed it as an opportunity for transparency. In an analysis they had conducted they found that the costs of the workers at the power stations was not calculated in the cost of coal as Eskom had presented in their numbers. It was difficult to find a solution when the costs were not transparent. Having the independent transmission SOE would allow government more control.

On the IPPs, she agreed with Prof Eberhard on the decrease of costs. However, from a developmental aspect there were many organisations that came forward with collective community-owned renewable energy projects which did not meet the standard. It was more expensive to run a developmental community energy project than it was for the strict large players. OUTA favoured developmental community power plants that could sell electricity to municipalities.

Ms McDaid agreed with COSATU that the country could not afford to lose more jobs as there were already 6.7 million unemployed people. Eskom was in a sector that could be localized. She visited a factory in the Western Cape where solar panels were produced. The factory also employed women so there was space for local production. Years ago, a vehicle manufacturing company said the same technology used to manufacture windshields was used to manufacture solar mirrors for big solar plants.

There was scepticism about how money was put into Eskom because there had been many bailouts with conditions Eskom had not complied with. New creative ways were needed to force compliance.

Finally, she indicated while she was presenting before the Committee one of her colleges was simultaneously presenting at the Finance Committee while another college was presenting at the COGTA Committee and all three Committees were discussing Eskom. She humbly requested that an ad hoc Committee be formed in Parliament to pull everyone together to conduct oversight as OUTA wondered where Mr A de Ruyter, Chief Executive Officer, Eskom found the time to carry out his duties at Eskom as he seemed to spend a lot of time reporting to various Parliamentary Committees.

Discussion
The Chairperson asked if there was anyone else from the public who wanted to add a contribution. He also apologized to Solidarity for sending the invitation to it too late to make a submission. 

Mr M Waters (DA) noted that Members did not have all the submissions and asked the presenters to email their submissions to the Committee.

Mr E Marais (DA) thanked everyone for their comprehensive input. Eskom was insolvent, a fact determinable from their balance sheet. He was worried as taxpayers could not continually bail out SOEs. Since 2008 there had been bad management and corruption within Eskom and those individuals who had stolen from Eskom and taxpayers should be held accountable.

The municipalities also had to pay their share and they should pay within thirty days because there was an enormous amount outstanding from various municipalities. He acknowledged and thanked those municipalities that paid within thirty days.

On COSATU and the retention of employees and its protest over proposed retrenchments, he highlighted that Ms McDaid also pointed out that the unemployment level was high. Young people made up a large percentage of the unemployment figures so Eskom should not add to the high levels of unemployment. There needed to be organic growth within Eskom but it was dwarfed by its debt so a balance was required between organic growth and retrenchments.

The serious problem was the interest accumulating on the large debt Eskom had. The debt repayment and interest was killing Eskom monthly. Everyone in the room was a contributor through the continual bailouts given to Eskom. Therefore, it was time to sign off on green and renewable energy that could sustain Eskom.

Ms J Mkhwanazi (ANC) welcomed the submissions and emphasised that everyone should not lose sight of the fact that solutions were required. She welcomed the COSATU submission especially where they cited Eskom as the main economic contributor. The nation needed Eskom to be sustainable so it could supply affordable, reliable electricity. That was its core mandate and it required a social compact as presented.

She asked COSATU for a practical municipal payment model as COSATU proposed that municipalities pay directly to Eskom. How would that work in practice as some municipalities use electricity to make a profit? On its point about electricity tariffs being affordable to consumers and exportation to neighbouring states, she asked for its proposal on the affordability plan. She supported the condition that workers do not get retrenched but asked for the plan to deal with bloated management and management perks. She supported the COSATU point that workers be represented on the Eskom board but asked about representation of other unions in the sector on the board.

Ms Mkhwanazi noted there were ongoing engagements and, despite disagreements, that was positive. She was disappointed at the non-submission by Solidarity as she had looked forward to its contribution. The Committee would find time to engage with it because she wanted to know their stance. It was perceived that Solidarity found the Eskom proposal controversial, so she wanted to know what alternative plan it had.

She asked COSATU to elaborate on its position on workers’ pensions and the conditions placed on investing in Eskom without any distortion. She asked the media not to distort this as well. 

The Chairperson reminded her that Solidarity had indicated that it received the invite to make a submission very late so it could not meaningfully engage.

Mr Waters thanked COSATU as it had submitted its submission in advance for Members to prepare questions. COSATU wanted guaranteed bonds from government but the fact was that there was no money. Therefore, guaranteed bonds were meaningless to pensioners who wanted to invest their hard-earned money into Eskom or any other SOE – it was a huge risk. The only way the state could guarantee that was through more debt which was undesirable.

He noted COSATU wanted worker representation on the Eskom board as a means of preventing corruption. However, he pointed to the fact that COSATU had seats in Parliament through its alliance with the ANC and could have called out state capture. COSATU members turned a blind eye, aiding and abetting the corruption that took place under their watch. How then would they be able to fight corruption on the Eskom board when they could not fight state capture in Parliament?

Mr Waters agreed with the COSATU submission about tackling the corruption in Eskom and what should happen to previous board members. He suggested that ‘the board’ on page 9 be replaced with ‘Cabinet’ to be the ones to be arrested and prosecuted. All action should be brought against Cabinet members and the deals they may or may not have with any SOEs should be scrutinized. He felt it was only when politicians were arrested would corruption be eradicated. No one knew who the board members of these entities were, but everyone knew who the politicians were, and they needed to wear orange overalls.

He asked if COSATU would be averse to a ballot of all PIC current and retired board members asking them to risk investing their pensions into SOEs. If not, then why would not they agree to that proposal?

Addressing Prof Eberhard's submission, Mr Waters asked why he did not mention reduction of employees as a cost cutting measure. It mentioned coal but did not mention employees. There were 10.4 million people unemployed in the country and it was not desirable to add an additional 17 000. However, to save Eskom tough decision needed to be made so it could be saved. That way it would become viable again and as a long-term goal could employ more people. He asked Prof Eberhard to explain why he never mentioned that and if it was a necessity to retrench some of the 17 000 workers.

If there were a downgrade on 27 March which was expected, did that make Eskom bonds and sovereign bonds junk status? Would that prevent a pension fund from investing in those bonds and if so, what would happen to the proposal put forward by COSATU?

Lastly, COSATU asked public servants to risk their pension and Mr Waters believed that Members of Parliament should be asked the same if this was asked of public servants. He had not seen anything in the submission to suggest that COSATU members would also invest their pension funds into Eskom. Were they prepared to invest into Eskom and why had that been omitted from the submission?

Similarly, Mr E Buthelezi (IFP) asked what COSATU was sacrificing as it had emphasised in its submission that sacrifices needed to be made to save Eskom. He also asked what progress had been made in the corruption cases against guilty parties. He asked Mr Parks to give one or two examples.

One of the COSATU conditions was that Eskom should not be privatized. He asked why it was opposed to privatization especially considering what it said on page 5 on the options and consequences. Government did not have capacity to turn things around so was it not time to consider public-private partnerships (PPPs).

Ms C Phiri (ANC) welcomed the submissions and was impressed by COSATU’s proposals. The agenda clearly indicated giving possible solutions to the operational and financial challenges faced by Eskom. Only COSATU and Prof Eberhard offered solutions to the problems. Stakeholders should present solutions when they appeared before Parliament and the Portfolio Committee.

Addressing COSATU, she said the use of employee pension funds to save an entity would fall outside the mandate of the Government Employees Pension Fund (GEPF) and the PIC. It would also constitute a breach of a contractual agreement with the members of the fund. She asked what guarantees would make fund members agree to the proposal.

She turned to Eskom board representation in the COSATU submission. Besides COSATU, there were other union federations in Eskom and in the energy industry in general so how would the representation work? Board corruption had to be uprooted but who would sit on the board as there were many other unions. Was the plan to include everyone as one could not pick one union over the others?

Citing page 12 of the submission, Ms Phiri noted she had been a representative in the local sphere, so she knew and understood what happened in municipalities. She agreed it would be helpful to establish a single payer account for everyone to pay directly to Eskom. Indeed, with a tariff hike an indigent household suffered to pay for electricity in municipalities that were licensed to sell electricity directly. She asked if there was a proposal to explain how the re-structuring of how municipalities would work. She believed it was all about working together which included federations and stakeholders working together. What was the collective idea on how to re-structure the funding of municipalities?

Her next question was directed at Prof Eberhard. She referred to the three elements he raised one being that the state could take on the debt, but he did not give his projections about the third mechanism, leaving a question mark about the COSATU proposal. Ms Phiri asked why he had not considered and incorporated COSATU’s proposal as everyone was aware of what they proposed. He needed to give his opinion as a professor who best understood the energy sector. Everyone knew the government did not have money to bail out Eskom and COSATU had proposed ways Eskom could be funded so why had Prof Eberhard not included an analysis of the options put forward by COSATU? Perhaps he was afraid to give his views on COSATU, but this was an engagement and he gave a two-part analysis but omitted the third part.

Ms O Maotwe (EFF) was disappointed that the stakeholders who had been invited in time did not submit their submissions. She asked the Committee to agree that no one should be allowed to present without having provided the submission beforehand as they needed to be vetted by the Chairperson’s office. The culprits were those who did not have anything meaningful to offer as was evident from the submissions. Nonetheless, she welcomed COSATU’s submission but felt it was centred on how to fund Eskom through more bailouts - it was silent on how to improve the efficiency of Eskom. It was insufficient to focus on bailing out Eskom. Talks about the crisis at Eskom created white monopoly capital. White monopoly capital owned mines and they determined their own prices in order to collapse Eskom so they could take over. The bailout money given to Eskom would return to white monopoly capital because those were the people Eskom owed. Why should the workers be threatened with retrenchment when they played no part in the collapse of Eskom? Efficiency at Eskom needed to be improved by streamlining processes.

She responded to Prof Eberhard and said Eskom would not be unbundled. Perhaps that worked in Holland, but it would not happen in South Africa.

Ms Maotwe asked COSATU and the other unions to push government about the coal mines. Coal mines could not be making money when the sole electricity provider was not making money. There could not be companies making huge profits that depended on Eskom to give them electricity when Eskom was not making any profit. She challenged COSATU to get the coal mining companies to give Eskom coal for free until Eskom became profitable. If the mining companies that determined their own rates could continue to bully Eskom there would be a continuation of white monopoly capital dictating to government entities.

She put the challenge to COSATU as it was the only one that gave a submission worth mentioning and asked them to review the evergreen contracts at Eskom. What was happening with them? If they were crippling Eskom why could they not be cancelled?

She said IPPs should be cancelled with immediate effect as the model was not financially viable. It did not make sense to buy electricity at 150 and sell it at 120 and anyone approving a business model like that would ordinarily be fired. How could an executive ask government to invest in something that was not financially viable?

Finally, she asked COSATU for a list of everyone who was not paying Eskom. There were companies and municipalities that were refusing to pay Eskom and it was high time they be listed.

Mr S Gumede (ANC) commended the Committee for inviting stakeholders to engage on the topic. Some of the ideas on how to save Eskom were appreciated. He thanked the Chairperson for his leadership. Mr Gumede found it difficult sometimes to be definite about the things the President had announced. It was his understanding that the unbundling was aimed at optimizing efficiency. He said Members could not definitively say unbundling would not happen as that was up to the powers that be.

He hoped that Solidarity did provide a submission soon so the Committee could move forward. From his point of view the submissions complemented one another because many aspects covered by COSATU were repeated by Prof Eberhard. The professor mentioned that he supported the views of COSATU to a certain degree which indicated that some of COSATU’s ideas were shared by Prof Eberhard and civil society.

Mr Gumede welcomed Ms McDaid’s suggestion for an Ad Hoc Committee although he did not know how it would happen and asked the Chairperson to lead the initiative. He hoped to be presented with a composite summary that included all the ideas from the different contributors. The Committee did not have to align itself with one single presenter instead, the process should be carried forward with everyone working together to combine their ideas into a composite plan - so it would be good to get a submission from Solidarity.

He knew the attitude of the unions and he did not want to encourage a competition between COSATU and Solidarity. He expected the two unions to work together.

Mr Gumede felt the COSATU submission was still shallow and needed to be unpacked further. It was a preliminary document and had a lot of incomplete detail. It needed to be supplemented with more information. Some of the items mentioned were not explicit. For example, with the installation of prepaid electricity boxes, it should mention that communities were expected to install those prepaid electricity meters. Perhaps another meeting could be called so COSATU could update its submission.

On the unbundling of Eskom, he said it had always been misconstrued to suggest a road to privatisation. He asked all stakeholders what their take was on the matter. He did not want a situation where the light at the end of the tunnel was visible, but someone closed it off. People always flagged privatisation as a threat especially to workers as mentioned in COSATU’s submission. Therefore, Mr Gumede asked the stakeholders for their interpretation and understanding of what the unbundling of Eskom meant. That could possibly influence some Members' position on the matter. Mr Gumede felt the unbundling of Eskom would enhance efficiency – as opposed to struggling to manage the entity in its enormity.

Ms J Tshabalala (ANC) said it was not easy to lead and coming from the governing party she understood the social compact to serve. She saw her role as more than a job – as an opportunity to serve. The mandate to serve required people to introspect and assess what was happening in the country and what needed to be fixed. She felt that despite the different political affiliations, it was important for the governing party to try and find middle ground as there were constituents without electricity. That was important for the country, for the economy, for frustrated businesses and people in hospitals. With no energy,  people had the potential to die. How could people survive if the levels of energy continued to depreciate without any possible solutions? Solutions on the table were sidelined by loyalty to policy that suited the constituency that had been voted in.

Addressing Prof Eberhard, she said President Ramaphosa during his State of the Nation Address (SONA) said that the utilization of pension funds would not occur recklessly and without due consideration. She asked Prof Eberhard for his thoughts on that statement. The right wing had created a certain notion about this and they immediately made pronouncements against this and were ready to approach the High Court. Perhaps it was their attempt to keep their own narrow comfort in relation to the inequality in the country. It was an attempt to keep the status quo. They always rushed to institute litigation. She asked for Prof Eberhard’s view on the use of pension funds invested by PIC and the courts being approached to declare this a breach of contract even though it was an attempt to save Eskom.

She said COSATU was always present in parliamentary discussions but was deemed to be a mere reactionary force that represented labourers, but she was very impressed with its submission. It wanted a comprehensive forensic public audit for all Eskom contract expenditure and debt. It addressed corruption by calling out corrupt managers who had illegal tenders and contracts. The labour force represented by COSATU comprised of men and women who worked but she asked if the labour force reported corruption when observed. Junior and senior managers were part of the system and the labour force could not be separated from the system despite the level of management. Corruption was trying to be rooted out but people in supply chain management had ways of manipulating the system. Therefore, was there interaction with the labour force that they report corruption out of their loyalty to serve the country? This tied in with labour representation on the board. Who would sit on the board as a union representative and how would they be selected? What law did COSATU have in mind when it determined that it wanted representation on the board. All the ills in Eskom were actioned by human beings pushing paper so what difference would union representation on the board make? What was the applicable law?

The COSATU submission suggested the arrest, prosecution and imprisonment of those who had looted, and confiscation of their assets. Ms Tshabalala said she would love to see people in orange overalls. She added, however, that populist statements did not assist at times. It did not mean that all politicians were corrupt so statements like ‘Cabinet must be prosecuted’ were problematic and indicated a lack of understanding of the separation of powers doctrine. Members in the new Sixth Parliament should assist by being ready to listen to solutions that could move the country forward. Thus she found the implications against the Executive, the year of the orange overalls and the call for politicians to be arrested to be empty statements.

On the Soweto debt, she said to COSATU that it was easy for them to say people should pay for what they had consumed but the historical context could not be ignored. She dismissed statements by people who said apartheid was cited as an excuse. The legacy of apartheid was still a reality. Those communities were indigent and most people in Soweto were given RDP houses. Those people are grandmothers and grandfathers who are retired and look after their grandchildren. They depend on grant money. She understood Eskom’s position but the grannies in Soweto were the first ones to pay Eskom with their pension money. Meter boxes could not properly quantify how much electric was being consumed. There were also problems with cable theft and illegal connections, crime and many other societal ills in those communities. She agreed that people should pay for what they use, and the President had said those who could afford to pay should pay. Ms Tshabalala suggested that COSATU would have thought about that and perhaps of ways the money owed to Eskom could be deducted from the social grants of indigent people in Soweto. That was not a policy of the ANC. She asked for better discussion on Soweto and moved for a dedicated day to be set aside to discuss Soweto with Eskom.

On unbundling, she spoke on behalf of the governing party and said it was a done deal. The President had pronounced on it, so it was not an issue up for discussion.

She would have loved to hear from Solidarity as it had made a lot of pronouncements in the media. She though they would have put a submission out as its pronouncements on Eskom have been explicit.

On the reduction of employees, she asked Prof Eberhard what the best option would be. The ruling party ideally would not want any job losses to occur but there were some things that were unavoidable. What were his thoughts on the labour force and saving Eskom? She said the President did not want to privatise but the reality of the situation was that the companies that were "running" Eskom had been around for decades and were entrenched in the system so that negated comments about not letting in white monopoly capital.

Responses
Ms McDaid from OUTA valued the questions and looked forward to further engagements. She felt the 'just transition" was not highlighted sufficiently and explained that Eskom should be unbundled in a way that strengthened the energy supply system in the country. Municipalities lacked skills as they did not have any electrical engineers or technical personnel. There were technical workers in Eskom that could be deployed at the local level which would strengthen local municipality electricity supply system which would relieve Eskom if found to be bloated. Eskom had done an amazing job in reaching many communities that never had been electrified.

Mr Deon Jenkins, Senior Coordinator at Solidarity, said they could not meaningfully engage as they were present as observers. They will come prepared next time if they receive an invitation in time.

Mr Jenkins did have any particular comments at the moment but their position was open - the issue was extremely complex and he would circulate copies of a submission which would include notes answering their questions. The questions had been noted and would be discussed with his group and would revert later.

The Chairperson said the presenters could respond to all questions even if those which were not directed at them. Everyone’s views were required.

In the context of Eskom’s insolvency, Prof Eberhard said there needed to be a multi-pronged approach dealing with debt relief and the income statement (revenue on one side and costs on the other). Coal was a big issue, but he agreed it was not the only issue. The second biggest issue for Eskom was the payroll. There were 32 000 employees in 2007 and that figure increased to 46 000 which indicated it was an area that needed examination. He would advise that Eskom began job cutting at management level. The positions at top executive management level which was the F Band had been halved. There was consensus that the E Band management level was overstaffed with numbers that grew hugely in the last few years. It was unclear what all the lines and responsibilities were. Given the sensitivity over high levels of unemployment, over time one could manage the right sizing of Eskom. Over the last year from FY2018 to FY2019 the Eskom employment numbers reduced by 2000 from 48 000 to 46 000. It was a process of retrenchment and early retirement which over a five to seven-year period could get the entity to more efficient numbers.

On the possibility of the sovereign downgrade affecting Eskom’s junk status, Prof Eberhard explained that Eskom was seven notches into junk status. Over ten years Eskom had gone from investment grade into junk status. It used to be three grades into investment grade and had a higher credit rating than the sovereign but it had dropped ten placings over ten years. Therefore, it was inevitable that Eskom would be downgraded if the sovereign was downgraded. The effect was that its debt would be much more expensive. When Eskom went out on international bond offer its dollar bonds if swopped back into Rands cost Eskom more than 16% in interest. That was a huge concern and was why the restructuring was important. Parts of the business such as Transmission as a stand-alone entity would quickly go back to investment grade accessing capital markets at much cheaper rates.

Prof Eberhard gave his view on COSATU’s proposals and said it was valuable to see the scope of the submission which he found to be comprehensive suggestions all aimed at creating a social compact around Eskom. He welcomed that. He found the controversial parts of the proposal were on how Eskom’s debt relief and re-financing would happen. The suggestion of a special purpose vehicle as the mechanism for that linked to improved performance in Eskom was very good. That was very different from simply taking transferring Eskom’s debt to the sovereign. The latter created a moral hazard as it did not encourage a change in behaviour. It encouraged Eskom to continually seek debt relief. The attractiveness of the SPV was that it created a separate financing vehicle, but re-financed Eskom based on improved performance. The controversial part was the source of the re-financing model. There needed to be a broader discussion around the use of government employee pension funds via the PIC and whether it was equity or debt. There was a very high risk that any equity investments in Eskom would disappear. There was R250 billion hole in Eskom’s accounts so it was too seeing how one could get an equity return on Eskom in its current position. The PIC already had high exposure to Eskom of more than R100 billion as did the DBSA where 25% of their loan book was occupied by Eskom. Those were the limits which was why the Presidential Task Team had put forward an additional proposal. Prof Eberhard was not advising against the seeking of additional PIC money but said other sources should be considered. In fact, a new source that could be very effective was the blended climate linked finance facility at concessionary rates.

He ended with the controversial issue of unbundling. He stated explicitly that unbundling did not equal privatization. Using China as an example, he explained that China had fully unbundled its electricity system. It had an independent transmission system grid company and several generators and distributors which were all state owned. The logic brought about efficiencies. He pleaded that positions taken on unbundling should not be equated with privatisation followed by a debate on the advantages and disadvantages.

On IPPs, everyone agreed that the old IPPs were too expensive. However, all the current IPPs comprised less than 5% of Eskom’s sales. They do not impact Eskom’s finances negatively. There were only two ways they impact Eskom’s finances negatively. One was if the IPPs were taking sales away from Eskom, but Eskom did not have enough electricity so IPPs were not taking sales away from Eskom. The second way IPPs could affect Eskom’s finances was if there was no full cost recovery which there was because when Nersa calculated the tariff there were two buckets of revenue – one being Eskom’s costs revenue and the second being what Eskom paid to IPPs. Every time Nersa did a tariff determination it gave Eskom the full amount it had to pay IPPs. That indicated there was full cost recovery. The expensive part that had to go to IPPs was spread across 95% of the consumers so the consumer was subsidising a small extra cost for IPPs.

Lasty, he added that new IPPs would be the cheapest source of electricity. The old IPPs were a problem but prices had changed extraordinarily. New IPPs would save Eskom money.

Mr Parks said COSATU was very excited by the conversation the entire country was having about Eskom. Eskom was not about any one person or political party. The priority was saving the country. He was accepting of the punches received from the media, the DA and other trade unions who were angered by COSATU’s proposal. It was not alarmist to say Eskom was in a debt crisis and Mr Marais was correct to call it insolvent and, if it collapsed, the country would become dysfunctional. The amount of damage already caused could not be emphasised and when Minister Nene was fired, the country lost R500 billion from the stock market which was workers’ pension money. If Eskom continued to decline, trillions of Rands in pension money would be lost and this fear was what informed COSATU’s intervention.

COSATU agreed with Mr Marais on the diagnosis. The debt levels were unsustainable and part of reducing Eskom’s cost of electricity generation was about investing in renewable energy which was why Eskom’s mandate should be expanded to allow it to involve fully in renewable energy. That meant more than a single wind farm because that would not save Eskom – the costs of electricity generation needed to be addressed.

The wage bill was not an easy thing to discuss but COSATU had to intervene otherwise Eskom would have retrenched workers. The Minister of Finance said 17 000 workers must be retrenched. Previously it was 12 000. COSATU would rather discuss how to save those jobs than to allow the entity to crash like South African Airways (SAA) at which time no jobs would be saveable. COSATU members had been facing the brunt of retrenchments in the state sector: the SABC and 27 municipalities have not been paying workers on time and that was due to the collapse of the state. COSATU would not simply offer slogans but would act on its word.

On the wage bill, Mr Parks replied that there needed to be a skills audit and head count. The head count had reduced to 44 000 from 47 000. A management structure that had gone from 80 to 800 earning above R2 million each could not be justified. These were not workers but the people who had mismanaged Eskom and needed to pay the price. COSATU agrees with the new CEO, Mr de Ruyter, that management should be re-deposited at the power stations as they should never have gone to head office. They are equally pleased he was doing a lifestyle audit. The people who had looted Eskom in supply chain management ought to face the consequences because public servants could not be expected to contribute to saving Eskom if the guilty parties have not faced any consequences. It could not be that management across the entities earned exorbitant salaries. Mr Hlongwa, CEO of Umgeni Water, earns R11 million a year, yet the focus was on the public servant wage bill which comprised of nurses and teachers who earned R20 000. If government wanted workers to tighten their belts, they ought to lead by example by first dealing with the bloated management structures, wasteful expenditure and corruption.

In response to Ms Mkhwanazi, Mr Parks said some of the issues would take time to flesh out and required a lot of technical working out. COSATU agreed that many municipalities depended on electricity tariffs, but Eskom could not subsidise local government as it is in trouble. A discussion was required to review the local government structure as it was unaffordable to have 257 municipalities. They were pleased with new District model which would capacitate district municipalities which would save costs. Bankrupt municipalities could not hold onto consumer’s electricity payments like in Harrismith where consumers were paying but the municipalities kept the money. It would take time to de-link the two, but it had to be done.

On the electricity tariffs, Mr Parks felt Prof Eberhard would know more about them but they had increased by 400% in the past decade. Unless the debt payments, corruption, wasteful expenditure were recovered,  Eskom and the mining industry would collapse. That also forced the mining industry to go off bid and they could not be blamed because mining jobs were also critical. That formed part of the financial intervention because if the financial pressure was taken off Eskom, then electricity tariffs would become more affordable to support consumer, mining, manufactory and neighbouring states.

He agreed that the production costs had to be addressed hence the suggestion that Eskom get involved in renewable energy which was cheaper. The bloated management structure, wasteful expenditure and corruption needed to be dealt with. The private sector also needed to contribute like the coal suppliers whose price increase should be slashed. Bid Window 1 IPP generation must be affordable as there was no point for the IPPs to hold onto their contracts if Eskom did not exist in a year’s time so their cost needed to be cut down to save a national asset. The people in Eskom who had been part of the overpricing needed to face the consequences of the breaking the law.

Mr Parks explained that people did not understand that the Government Employment Pension Fund was a defined benefit fund. What was received was based upon years of service and the amount contributed which was the same for the other funds that were part of the PIC investment pool. PIC had been making huge profits for the last 15 years. They had R400 million and R2.1 trillion. COSATU was not saying to take money from the teachers pension fund but from the excess interest that was available in the PIC that could be utilised to save an essential national good. If Eskom collapsed there would be no stock market where PIC was invested in 1200 companies meaning 90% of the PIC investments were in the stock market. If Eskom collapsed those shares would be meaningless. Mr Parks was sure none of the Members could name five companies where PIC had investments. There had never been a discussion about any of the 1 200 companies’ investment benefits for the workers so when COSATU initiates the discussion it was ironic for people to reprimand them. Workers had never been consulted about PIC investing in Steinhoff. Their suggestion was not to invest the money in a reckless way. If PIC only had a R105 billion of which R50 billion had already been paid back which was R90 billion through government bonds then the R100 billion would be 4% of PIC assets which was too small a percentage to pose a threat to the other 96%. What could be guaranteed was that if Eskom was not saved then the entire PIC investment on the stock market would collapse. This was not the first time this method of intervention had been utilised. A year ago, R3 billion had been invested into Edcon. Although the money would not be returned immediately as that would take three years, Edcon was operational again which was in the nation's interest.

Mr Parks knew that they all had different political beliefs and the opposition party was not criticised for that. COSATU was socialist and believed in state intervention while the DA wanted to privatise Eskom. These were the ideological differences. COSATU did not take the matter lightly and when there was looting at PIC, COSATU intervened and worked closely with the Fifth Parliament to address the corruption in PIC. A result of the intervention was three workers sitting on the PIC board. Even though they faced much criticism it was a necessary intervention.

Mr Parks said government bonds which were guaranteed were more affordable for Eskom as the payment terms and interest levels were more lenient than banks lending money. Mr Waters was correct about the risk factor but if there were no intervention, that would result in a guaranteed loss of pensions and jobs.

On board representation, Mr Parks explained that they wanted to maximise the pressure on Eskom to restructure.

Mr Parks agreed with Mr Waters that the lifestyle and forensic audits needed to be conducted across the board to include all existing and previous Cabinet, Provincial MECs, Mayoral Committees as well as opposition party members who had been linked to PIC investments like Steinhoff and VBS Mutual Bank. They all needed to face the might of the law. Corruption did not have a colour and existed everywhere, even within trade unions, so it needed to be uprooted.

Mr Parks said populism was an attractive thing, it would be nice to have a ballot asking the country whether to invest in Eskom but there could also be a ballot on Steinhoff. Saving and investing in the SOEs was a clear ANC mandate during the last election cycle. PIC had been investing in Eskom for many years so what was different now? Mr Parks warned against being too populist because if there were to be a referendum on whether to reinstate the death penalty then most of country would vote yes even though it would not be the right thing to do. The same could be said about taxes where, if asked, the entire country would vote against taxes. COSATU was willing to invest as well. Everyone should contribute, public and private, to share the burden and the risk, to save the national asset.

In response to Mr Buthelezi, Mr Parks explained that workers were already sacrificing through the 40% unemployment rate and retrenchments. Eskom workers were under huge pressure because the retrenchment guarantee was hanging over them. COSATU knew it could not simply offer slogans so it supported the PIC investment and it was willing to invest its pension funds as well. It would have a discussion on the head count.

There needed to be more Eskom arrests.

On the unbundling of Eskom, Mr Parks said Eskom must remain a public utility. Mr de Ruyter was focused on division which was welcomed if it remained a public utility and workers were not retrenched. Even if Eskom were to be privatised there would not be anyone willing to buy a company as it had R450 billion debt. Opening up the IPPs would not help as they only generated 5% of current generation capacity and it would take a decade to reach Eskom’s capacity. The IPPs should stand on their own two feet and the tariffs they charge should be affordable and could not bleed Eskom.

In response to Ms Phiri, COSATU had focused on solutions as complaining would not keep the lights on. COSATU was the only one to step forward and offer contributions. They welcomed other contributions which would be enriching. There had been positive responses from the private sector, from the pension funds and lenders. COSATU agreed with businesses who said that when investing in Eskom their fiduciary duty, integrity of the markets and pension funds ought to be respected.

On board representation, he explained it was part of building trust. If workers were expected to invest their pensions in Eskom to save it, then they needed a seat at the table. That encouraged confidence and transparency. The same was asked of the PIC board. They did not ask for two COSATU members to sit on the board with their red T-shirts. They specifically fought for the minority unions to have one seat by law as part of oversight and transparency.

In response to Ms Maotwe, Mr Parks said the money was not a bailout but an investment with 35 conditions as it was too significant a cost to hand over a blank cheque. They specifically looked at how to reduce generation costs which were caused by corruption, wasteful expenditure, bloated management and over pricing. He agreed with Ms Maotwe’s stance on the coal pricing and evergreen contracts. Eskom needed to join the renewable energy sector. This indicated that fundamental structural issues needed to be addressed.

He said the principle that "those who did not pay for electricity would not receive it" had to be applied. It could not be that 60% had prepaid while 40% could pick and choose when to pay. This was not sustainable with the crisis Eskom was in. The indigent policy had to be enforced including in Soweto. The free allocation to indigent households needed to be increased but Soweto could not be handled with kid gloves when Khayelitsha and Limpopo could pay when poverty was across the country. If one qualified for a social grant and was an indigent household, then they needed to register to receive free electricity. However, the rest needed to pay including Soweto which was always a tight political contestation.

The Chairperson gave Members one minute to make follow-up remarks.

Mr Waters asked Prof Eberhard how low into junk status an entity could go. Was there anything prohibiting a pension fund from investing in a minus seven junk status entity?

On the PIC using the excess money, Mr Waters understood that over time the PIC had invested quite wisely hence the excess money. Therefore, when they invested in Steinhoff it was a going concern and not junk status. However, what COSATU asked of workers was to risk their pension on a junk status entity with a state guarantee which was not a guarantee at all. Thus the insistence for a ballot to be put to current and retired members to see if they wanted to gamble their pensions.

Ms Maotwe warned the ANC Members against listening to anything from COSATU without interrogating it. She said unbundling would not solve the problems faced by Eskom. New structures would be required for the Distribution and Generation which would be an addition to an already bloated structure. That approach had not worked at Transnet that had an engineering division which looked at manufacturing and maintenance. It could never stand on its own unless they sought business from the continent. The engineering division could not stand on its own and it was always being supported by other Transnet divisions. She agreed that the issue be engaged on further but the ANC needed to heed this warning.

Mr Gumede asked COSATU how long it would take to put its plan into action. He asked that the concerns put to them by the stakeholders be debated by the Committee.

Ms Tshabalala asked COSATU if they had engaged with the Department or the Executive on their plan. On retrenchment and early retirement, did they know how many early retirements there were that were over the retirement age but were still in the system?

Prof Eberhard said Eskom’s credit rating could still fall and it was not unlimited. Moody’s, S&P and Fitch had credit rating tables and once the bottom was reached the entity was worthless and no one would lend to it. As an entity went down, the cost of capital increased and it became more difficult to access capital which was where Eskom was as – it was difficult for it to access new capital markets.

Mr Parks said COSATU met with the Alliance Political Council in November 2019. They had also engaged with the President with the Ministers of Public Enterprise, Energy and Finance. They had engaged with businesses and accepted nothing would happen overnight as it would take six months to a year to flesh out all the details. It was more important to rebuild the trust as it had been difficult to trust anything Eskom management said. Eskom had bought water bottles at R54 and black plastic bags at R24 each; they could not be trusted to tie shoelaces. There was hope in Mr de Ruyter. Everyone needed to be verified and checked and the tough conversation needed to be had once and for all as it could not be a repetitive cycle.

On the time frame, there were urgent matters that needed to be implemented as soon as possible. Others were medium- and long-term goals. That is why future energy considerations were included such as the move to electric vehicles and solar panels.

In response to Mr Water, Mr Parks said that using PIC invested pension money was not an easy thing to suggest. A previous unnamed Minister of Finance came to COSATU and suggested the PIC invest in SOEs and he was chased away but that was the era of officially-sanctioned State Capture and Eskom was not collapsing as in its current state. There was not the luxury of time for not intervening. Transparency would be fostered by conducting a forensic audit and they too would love to see a few politicians sent to Pollsmoor prison. PIC had a legally sanctioned mandate which it should abide by. Mr Parks was not impressed by the fear-mongering video the DA released that "COSATU would take their pension monies". He understood that was part of the political game but it was a sensitive issue. He referred to the corruption that also existed within the private sector such as Steinhoff and the private sector had also been part of the Eskom looting.

The Chairperson thanked everyone for the rich information. He wanted to be inclusive - all stakeholders should be listened to without prejudice and negative attitudes on their views on how to solve the problem comprehended. It was unavoidable that COSATU’s submission was the most comprehensive of all. It opened the debate. He thanked Prof Eberhard who would be called upon in future meetings. He thanked EIU and apologized to Solidarity once again and asked them to send their submission so it could form part of the Committee engagement and debate. The Committee would meet with the new leadership of Eskom so they could explain their turnaround strategy. It would be great to get a sense of their plan for load shedding and how long they expect it to continue so they can be held to account on that.

The meeting was adjourned.