South Africa unveils rescue plan for ailing power company

A woman carries firewood on her head as she walks below Eskom’s electricity pylons in Soweto, South Africa. (Reuters/File)
Updated 29 October 2019

South Africa unveils rescue plan for ailing power company

  • “The restructuring of Eskom has the benefits of increasing transparency, particularly in respect of costs”

JOHANNESBURG: South Africa on Tuesday unveiled plans to fix its embattled state power utility Eskom, which has sporadically suffered rolling blackouts that plunged businesses, schools and homes into darkness.

Public Enterprises Minister Pravin Gordhan detailed a long-awaited roadmap that will see Eskom divided into three subsidiaries: Generation, transmission and distribution.

Gordhan said that the transmission unit — which conducts electricity and manages 45,000 km of power lines — would be the first to become a stand-alone entity, still owned by Eskom.

That process is expected to be completed by March 2020.

“The restructuring of Eskom has the benefits of increasing transparency, particularly in respect of costs,” Gordhan said.

Eskom, which generates around 95 percent of South Africa’s electricity, has accumulated $30 billion of debt despite receiving multiple government bailouts.

Credit ratings agencies have warned that Eskom’s debt could cause downgrades and embarrass President Cyril Ramaphosa, who was re-elected this year in part on a pledge to restore the economy.

Eskom has long struggled to produce enough power due to aging and poorly maintained coal-fired power stations combined with decades of mismanagement and alleged corruption.

South Africa was hit by a week of rolling blackouts earlier this month — a tactic known as ‘load-shedding’ — aimed at rationing electricity when demand is too strong.

Gordhan gave no details on Eskom’s financial restructuring, saying only that Finance Minister Tito Mboweni was likely to comment on its debt when he presents a mid-term budget on Wednesday.

Energy supplies had to stay ahead of business activity, Gordhan said, “so that we are not acting as a constraint on economic growth.”

South Africa’s government plans to pour 128 billion rand (around $8.8 billion) into Eskom over the next three years.

State-owned companies were at the center of corruption scandals known as “state capture,” under South Africa’s former President Jacob Zuma.

Gordhan said that continues to affect the utility in a “systematic” way as many highly-skilled professionals were squeezed out of Eskom.

A new CEO is also be announced in coming weeks to replace Phakamani Hadebe, who resigned in July citing “unimaginable demands” of the job.

The new business plan should also expose Eskom to more competition and orient it toward renewable sources of energy.

The utility will be expected to cut coal and diesel costs and negotiate lower prices from renewable energy suppliers.

Power stations are to be grouped into clusters and compete among each other to give consumers cheaper electricity.

$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.