PIC's Eskom bailout causes concern about government employee pensions
The R5-billion bailout for debt-crippled state owned energy generator, Eskom, by South Africa’s Public Investment Corporation (PIC), has left many concerned about the risk this poses to government employee's pensions.
Eskom is looking at other funders to reach its R20-billion needs. Image: GCIS
The PIC is South Africa’s biggest investor and manages a R1.87-trillion fund, 88.2% of which comes from the Government Employees Pension Fund(GEPF).
The two entities said on Monday the loan extended to Eskom was a bridging facility to cover the entity’s operations for the month of February. Eskom still needs a further R15-billion which it aims to raise from other lenders.
The Public Servants’ Association has viewed the Eskom bailout as a betrayal by both the GEPF chairperson and PIC board of members of the pension fund whose market value is estimated around R1.67 trillion.
“We oppose this bailout, irrespective how it is termed. It is now clear that we cannot trust both boards to look after our members’ pension,” said Ivan Fredericks, the association’s general manager.
He alleges that there was agreement reached between the two fund managers and other stakeholders where there was reassurance about not bailing out state owned enterprises(SOEs) with chequered governance records.
“Our attempts to reason with the Finance Minister and the GEPF and PIC boards have come to naught. This R5-billion, unconsulted, illegal transaction will be met with the necessary consequences for GEPF and PIC,” he warned.
Referring to recent changes to Eskom’s senior management, PIC ceo Daniel Majila said: “The GEPF and the PIC are encouraged that the new Eskom Board and the new management team have moved with the necessary speed to restore good corporate governance at Eskom.”
The GEPF has more than 2,73-million active members and nearly half a million pensioners. It has more than R1-trillion in unclaimed benefits which it owes to former government employees, their spouses or their beneficiaries in cases where the member is deceased.
Dr. Daniel Majila, Public Investment Corporation ceo, says Eskom's financial statements released last week were frank about the dire state of the power utility's finances. Image: PIC
The bridging facility is fully backed by a government guarantee. Eskom’s debt is estimated at R367-billion.
The bailout is meant to rescue the state energy generator from a credit crunch that has seen its prospects viewed negatively by rating agencies. Moody’s cited the power utility’s deteriorating financial and liquidity position when it downgraded Eskom two weeks ago.
The agency said Eskom’s liquidity prospects will stay dim unless the company can secure a near term injection from treasury to shore up its weak financial profile.
Towards the end of 2017 Eskom was running out of money and it was doubtful whether it could meet its December commitments which included the payment of suppliers and about 47 000 employees. It raised a loan of R3,5-billion to keep afloat since its funds were severely depleted.
This is not the first time state owned enterprises have looked to the PIC to get out of their financial woes. Last year public alarm was raised when there was speculation about a possible bailout of South African Airways (SAA). The GEPF was forced to release to reassure its members and said it will not fund SAA.
The bailout has been met with conflicting reactions from labour federation Cosatu and one of its affiliates, Nehawu, whose members are employed by several government departments and entities.
In its reaction on Monday Cosatu’s spokesperson Sizwe Pamla expressed the federation’s support for Eskom’s rescue citing the power generator’s importance to the South African economy.
“Despite our reservations and trepidation, we grudgingly support this move and we view it as a way of ensuring that Eskom and the new leadership are given the necessary support to keep the lights on and restore the power utility to its rightful place,” the federation said.
This is in contrast to Nehawu’s opposition to the bailout until the entity’s governance and finances are turned around with possible prosecution for those responsible for depleting Eskom’s coffers.
“What worries us the most is that just last year Eskom received a qualified audit report, which was primarily due to irregular expenditure, and poor leadership. Its poor governance and recklessness with finances had left it on the brink of insolvency,” the union said.
Rival labour federation SAFTU condemned the bailout which it sees as an imprudent way of spending workers pensions. They say Eskom can instead recover some funds through the Assets Forfeiture Authority from “those companies who stole billions” by looting its coffers.
Eskom is the subject of an ongoing parliamentary inquiry into the organisation’s implication in corruption, financial mismanagement and money laundering allegations raised by former public protector Thuli Madonsela’s State of Capture report which fingered some of Eskom’s senior leaders.
Members of the Gupta family which is alleged to have had undue influence on president Zuma and the awarding of tenders by SOE’s are expected to appear on March 6 before the portfolio committee for state enterprises.