Department of Public Enterprises (DPE) director-general Tshediso Matona has confirmed that the interdepartmental task team established to find a solution to Eskom’s financial problems had agreed that further support would be required. However, he said it was premature to place a monetary value to that possible support, or to divulge details about the other elements of a possible long-term package.

Matona chairs the interdepartmental task team made up of officials from the DPE, the National Treasury, the Department of Energy and Eskom. He spoke with Engineering News following remarks by Eskom finance director Tsholofelo Molefe in Business Day indicating that the State-owned utility might require a R50-billion equity injection along with further upward tariff adjustments to safeguard its sustainability.

Molefe stressed, though, that the utility’s cash flow situation remained stable.

Matona said progress had been made on the possible elements of the package – which could include converting a portion of the R60-billion subordinated loan already extended into equity and guarantees beyond the R350-billion that has already been made available. However, he added that there was as yet no finality on the package.

“When the requirements have been concretised, we will then take that formally to the National Treasury,” Matona explained, adding that it is likely that Cabinet sanction may also be required, owing to the magnitude of the support envisaged.

Following the third multiyear price determination (MYDP3) by the National Energy Regulator of South Africa (Nersa), Eskom announced that it faced a R225-billion revenue shortfall as a result of it being granted increases of 8% between 2013 and 2018 as compared with the 16% it had sought.

In response, Public Enterprises Minister Malusi Gigaba confirmed the establishment of a task team, while Eskom indicated that it was assessing restructuring options, as well as ways to claw back ‘prudently incurred’ costs over and above those allowed for during both MYPD2 and MYDP3 through the Regulatory Clearing Account (RCA) mechanism. The restructuring project also focused on internal efficiencies, as well as the deferral or cessation of activities, the accumulation of additional debt finance and the use of equity, or equity-like instruments.

But the utility also did not entirely discount the possibility of approaching Nersa for a tariff ‘reopener’ should it fail to find other ways of dealing with the shortfall.

Eskom has already submitted an RCA appli-cation for MYPD2 and Nersa expects to make a determination soon, which could result in an upward adjustment to tariffs from April 1, 2015.

“Although the R225-billion revenue shortfall from the Nersa’s MYPD3 determination has been closed out (through Eskom’s internal efficiency processes), it has left Eskom’s credit metrics showing negligible improvement over the MYPD3 period,” Molefe said.

“This is seen as inappropriate as Eskom seeks to be a fiscally responsible entity and where possible limit undue dependence on the shareholder,” she added, noting that the task team was working on a long-term solution, which might include an equity injection.

However, Motona also told Engineering News that the task team had an immediate priority related to securing short-term resources to enable Eskom “to keep the lights on” in the coming few months.

The short-term package was focused on finding the financial resources to:

Pay for higher-than-expected diesel costs associated with the heavy use of the open-cycle gas turbines (OCGTs). • Restart the demand-side-management programmes. • And resume power purchases from private and municipal generators.

The OCGT plants in the Western Cape are currently burning the equivalent of around R1-billion a month in diesel and Eskom has overshot its budget in this area – a problem that is likely to persist until a number of Medupi units have been introduced.

The short-term resources required for the coming 24 months could be as large as R25-billion, including a recovery of diesel costs incurred during 2013/14.

The task team is interrogating various funding solutions, from further exploiting Eskom’s balance sheet, through to additional shareholder support and the use of the RCA.

Matona acknowledges that the outcome of the RCA application is outside government’s direct influence, but says “the regulator has to be a responsive regulator . . . we have a crisis staring us in the face”.

He also stresses that no decision has yet been taken about whether Eskom would approach Nersa for a tariff reopening. “It’s all still work in progress.”

That said, the DPE is aiming to secure a short- term relief package before the current adminis-tration is dissolved. South Africa holds its fifth democratic elections on May 7 and the administration will endure until the new President is inaugurated.

“We have about a month or so to sort this out.”