(Bloomberg) -- South Africa's government is intent on putting embattled state power company Eskom Holdings SOC Ltd. back on a sustainable footing and will consult with its debt holders on any reorganization, Public Enterprises Minister Pravin Gordhan said.
“I think the market understands that we are going to run a fair process,” Gordhan said in an interview with Bloomberg TV at the World Economic Forum on Africa in Cape Town on Thursday. “We require a bit of patience through this period where we are looking at different options, and the second period during which we will consult with all the lenders, and the third period during which we will implement those options. I don't think there's any real concern about haircuts.”
Eskom, which supplies about 95% of South Africa's power, has amassed 450 billion rand ($30.5 billion) of debt and turned to the government for bailouts to remain solvent as it confronts massive cost overruns at two partially completed coal-fired plants. The government has proposed splitting the utility into generation, transmission and distribution units under a state holding company -- an option rejected by labor unions that fear it will lead to privatization and job losses.
The government will publish a policy paper within the next few weeks that spells out the future it envisions for Eskom, Gordhan said.
“As we begin to redesign Eskom, we need to consult with the unions and we need to get a compact,” Gordhan said. “They have legitimate concerns that we should not be putting our people into the streets and our president has said that is not our intention. More importantly as a government in South Africa, like anyone else, we have a responsibility to make sure that we train our workers for the future.”
In an economic plan published on Aug. 27, the National Treasury suggested that Eskom could raise 450 billion rand by selling off coal plants.
Read more about the proposals in the Treasury's policy paper
The economic plan “is about generating debate, it's about generating options and expanding the scope of thinking around the type of issues that we have to deal with in our economy,” Gordhan said. “It's one of the contributions. There are different views, particularly with the kind of price-overruns and time overruns on the newer power stations. So it's a set of ideas, let's have a look at it. ”
Other highlights from the interview:
- Moving Eskom debt onto the government's balance sheet would have implications for the nation's sovereign debt rating and would require careful consideration.
- The government believes it can chart a new course for Eskom within the next few years that would enable the utility to continue operating without placing undue pressure on the nation's finances.
- There is “huge interest” from investors to partner with the government in state entities, such as arms manufacturer Denel SOC Ltd., and in operating ports and railway lines.
- “There are a multitude of options available to us. We are processing those at the moment to see how, on a viable basis, we can entertain some” of them.
--With assistance from Mike Cohen and Paul Burkhardt.
To contact the reporters on this story: Amogelang Mbatha in Johannesburg at ambatha@bloomberg.net;Manus Cranny in London at mcranny@bloomberg.net
To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Rene Vollgraaff
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