Gordhan wants to sell some of Eskom

IOL pic july1 eskom pylon BLOOMBERG File picture: Dean Hutton, Bloomberg

Johannesburg - South African Finance Minister Pravin Gordhan argued for the sale of a stake in the state power company at a meeting of senior ruling party leaders and government officials last week, putting him in conflict with the head of the utility, a person with knowledge of the discussion said.

Gordhan suggested private shareholders should be able to buy as much 49 percent of Eskom Holdings, according to the person with knowledge of the discussion who asked not to be identified as they aren’t authorised to speak to the media. Eskom Chief Executive Officer Brian Molefe disagreed with the minister at the meeting, the person said. Gordhan’s spokeswoman requested Bloomberg send questions by e-mail.

“There are people who felt to alleviate the financial pressures, a portion of Eskom needs to be sold to the private sector,” Molefe said in an interview in Johannesburg on Wednesday, declining to comment on what he or Gordhan had said at the meeting. “I don’t think it would be a good idea at this point in time. I don’t think we’d get a good price.”

Molefe, who has also run the state transportation company and fund manager that oversees the investment of government workers’ pension funds, was appointed to lead Eskom in April to stabilise the utility as power cuts due to inadequate generation capacity slowed economic growth. The company needs about R237 billion ($15 billion) over the next five years to fund building new plants and already has R322 billion in loans and bonds, according to data compiled by Bloomberg.

The company is building two coal-fired power plants and a hydropower complex.

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How to fund Eskom was debated last week at a meeting of the ruling African National Congress’s top decision-makers, political allies, government officials and CEOs of state-owned companies, according to Enoch Godongwana, who chairs the ANC’s Economic Transformation Committee, and Molefe. Both participated in the discussion.

South Africa’s economy is struggling because of a commodity-price slump, slowing demand from China and the worst drought since records began in 1904. The World Bank this week said it’s “flirting” with recession and cut its economic growth outlook for the year to 0.8 percent from 1.4 percent. A lowering in the outlook of South Africa’s credit-rating, leaving it just within investment grade, and declining investor confidence following the surprise removal of Nhlanhla Nene as finance minister in December have contributed to a 12 percent decline in the rand against the dollar in the past three months.

Nene was replaced by a little-known lawmaker, David van Rooyen, who was in turn removed after four days and replaced by Gordhan, who had been in the portfolio from 2009 to 2014.

The people at the meeting didn’t agree on a course of action, Molefe and Godongwana said.

“There is a growing appreciation within the ANC that this issue must be tackled,” Godongwana said, declining to comment on the interaction between Molefe and Gordhan. Increased power prices and more debt are not ideal options, he said.

South Africa in July sold a stake in Vodacom Group to help support Eskom.

Read also: High power hikes seen until 2022

The timing of a partial sale would be poor because Eskom’s high debt levels and comparatively low electricity prices mean it wouldn’t raise a lot of money and the buyer would profit when cash flow improved, Molefe said.

“I would wait for our capital projects to finish, for better utility prices and I would sell then,” he said.

BLOOMBERG

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