Cosatu’s debt bailout proposal for Eskom amounts to nothing more than a free lunch
In the spirit of coming to a solution to the Eskom debt crisis, we welcome the contribution that was made by Cosatu over the past week. But we caution against its adoption because we can’t use public pensions as a convenient “piggy bank” to bail out our indebted state-owned enterprises (SOEs) and avoid the fundamental reforms that have long been highlighted.
It would set a bad precedent — a short cut, and an unsustainable one at that, to getting our over-indebted SOEs back to profitability. It’s a slippery slope and opens up a future “box of tricks” to avoid the hard decisions that come with structural reforms that all stakeholders know are urgent.
As a society, we agree with the conditions that Cosatu has set to tackle the almost half-atrillion-rand Eskom debt problem, namely, dealing with corruption, senior manager restraint and a jobs audit.
This plan, however, has no detailed vision of just how funds raised through the pensions of public servants will ever be returned with interest, or just how the SOEs in question will be returned to profitability. There is no recognition of the role of SOEs in placing the economy on its current low-growth trajectory or the role unions played in getting Eskom into the position it is in today. Comparative studies show that Eskom’s unionised workers are overpaid by about 20%.
In the proposals, there’s no talk of restructuring Eskom, nor are there plans to do so. Unbundling is a necessary condition for a dynamic energy industry, regardless of ownership, and is possible with the right advice through the deleveraging process. As such, the debt bailout proposal amounts to nothing more than a free lunch — tapping into funds that are not sustainably available.
There is no real sense of why this is important except to maintain Eskom’s status quo as a monopoly generator and secure its position as an employer of labour. The union federation wants a commitment that there will be no worker retrenchments and that it won’t be privatised. To endorse such a move would be to cross a Rubicon. After this, you may as well go ahead and endorse the spending of an additional R100bn stimulus into the economy from these pensions as well.
After all, the National Treasury will have to foot the bill in the end. We all agree that the deleveraging of Eskom’s debt is something that simply has to occur. The problem is the modality. There are some strategies to dealing with Eskom’s debt service costs, such as refinancing at lower cost, demanding lower rates.
We can’t use public pensions as a convenient ‘piggy bank’ to bail out indebted SOEs
This can be done partially, though with very limited scope. Cosatu has recommended that the Public Investment Corporation (PIC), which holds just under a R100bn of Eskom’s debt, swap it for equity. There is no upside for the corporation.
What we deem more preferable is the swap to sovereign paper because it’s fast and cheap to do — without compromising pensions or the health of state-owned financial services companies such as the PIC, the Industrial Development Corporation or the Development Bank of Southern Africa (DBSA).
Of the options that we finally take, as Business Leadership SA we believe there is no need to use DBSA or PIC funds as that would create contagion risk for the country and also encumber these entities.
Simpler restructuring is needed, and it’s time for the country to overcome its fear of getting international advice on this issue. We must protect the sound and prudential utilisation of funds in our financial SOEs.
The debate about Eskom is a welcome one and Cosatu has certainly shot the first salvo. It’s a proposal that doesn’t play into any factional battle within the governing party. But it does stir up concerns that the ANC will bring the issue of prescribed assets back to the fore under the pretence of saving our ailing power utility.
This is not a new idea and one that the apartheid regime first experimented with through the Pension Funds Act. Bringing back a policy used by the National Party government, which prescribed that a specific percentage of state pensions went into government bonds that were, in turn, used to fund government and semi-government institutions, would have dire consequences.
There’s no need to return to this beaten path. If the state wants to attract the sort of longterm investment the economy is in desperate need of, it should quite simply provide the right incentives and environment for domestic and international investors to invest. The government needs to ensure policy certainty on matters such as the Mining Charter and land reform, to name just two.
Forcing overseers of people’s pensions to place their funds into indebted and poorly managed SOEs is to risk throwing good money after bad.
This article was first published on the Sunday Times 09 February 2020.