Some months back as power utility Eskom began careering out of control, operationally and financially, threatening the economy and the fiscus as much of its debt is guaranteed by the government, I spoke to a former Treasury official on the likely way forward.

This was specifically if runaway debt could mean that the country ended up in the hands of the International Monetary Fund (IMF) which makes governments do some of the unpopular things they cannot do for themselves, such as control errant state enterprises, close or sell the loss-makers and generally take control of government spending.

His view was that long before we begin earnest conversations with the IMF, the R2-trillion of mostly pension funds of state workers managed by the Public Investment Corporation would be accessed.

It was not too many months later, in December 2019, that I held a document put together by trade union federation Cosatu, which argued for R250-billion from this source as well as from development finance institutions and the unemployment insurance fund (UIF) be used to restructure Eskom.

Cosatu stipulated numerous conditions, including the need to put the thieves who had stolen us blind into orange overalls. Its thinking was that an Eskom collapse could be fatal for the economy, the state and for workers, and so it was possibly prudent for pension funds to be used to help restore the utility to financial and operational sustainability. Put simply, no economy, no pension.

Extraordinarily, here was organised labour arguing that the pensions of workers be used to save Eskom (although of course, the risk then is negligible because the Government Employees Pension Fund is a defined benefit fund). Nevertheless, if the proposal had come from government or business, it would have faced significant headwinds.

For many, the idea of using pension money to finance a flailing state enterprise is so whacky, so irregular, so mad, that you could expect that the idea would be stillborn. But the proposal, which has been progressed and refined in Nedlac, found political support from Public Enterprises Minister Pravin Gordhan, and soon thereafter, from President Cyril Ramaphosa.

While the expectation had been for a framework agreement between the Nedlac parties to be in place in time for the State of the Nation address (SONA) last week, with just two days to go it was agreed that more work needed to get everyone, specifically dissenting labour voices, on board. The issue still has urgency, though — one participant saying the intention now is for an agreement to be in place before Moody’s updates its credit rating report which is expected in March.

On Monday Moody’s revised South Africa’s projected growth for 2020 to 0.7% from 1%, citing the detrimental impact of continued load shedding on the country’s manufacturing and mining activity. The rand responded by trading at above R15.00 to the dollar.

Meanwhile, Eskom Boss Andre de Ruyter told parliamentarians on Tuesday that it needs a cash injection to avoid a debt crisis, Reuters reported.

“The issue of Eskom debt has to be addressed to make Eskom sustainable,” de Ruyter told Parliament’s Standing Committee on Public Accounts.

“The money is going to have to come from somewhere. Either it comes from a tariff increase or it comes from an equity injection. It (the debt) doesn’t just disappear. In fact, it creates a very significant risk to the sovereign.”

Ramaphosa referred to the Nedlac discussions in his SONA address, saying “the social partners organised under Nedlac have been meeting over the last two weeks to agree on the principles of a social compact on electricity”.

“This is a historic and unprecedented development since it demonstrates the commitment of all partners to take the necessary actions and make the necessary sacrifices to secure our energy needs. Through this compact, the social partners seek an efficient, productive and fit-for-purpose Eskom that generates electricity at affordable prices for communities and industries.”

Ramaphosa said “this requires both a drastic reduction in costs – including a review of irregular contracts – and measures to mobilise resources that will reduce Eskom’s debt and inject fresh capital where needed.”

He said trade unions, business, community and government are working to finalise this [social compact] agreement, to mobilise funding to address Eskom’s crisis in a financially sustainable manner.

“They would like to do this in a manner that does not put workers’ pensions at risk and that does not compromise the integrity of the financial system.”

The position of organised business in the Nedlac discussions is that any restructuring will be within the mandates of the financial institutions involved, that the fiduciary responsibilities of the trustees are not undermined, that risk-adjusted returns are not hurt and that the current regulatory environment is respected.

A noticeable feature of the current input around a financial fix for Eskom is how little information is publicly available. There are exceptions. Cosatu, for instance, has detailed its thinking in a set of documents, but most, if not all, proposals envisage some kind of special purpose vehicle (SPV), a legal entity which would be used to restructure Eskom’s debt to — hopefully — sustainable levels, and none of these are available as yet for public scrutiny.

Several SPVs, which you’d expect have similarities, have been put forward, including an $11-billion proposal by Meridian Economics, which reportedly envisions money being loaned by global development finance institutions at concessionary rates on condition Eskom accelerates the closure of polluting coal plants in favour of renewable energy.

This proposal appeared to find favour with Ramaphosa. South Africa, with other coal-intensive countries, was not granted speaking rights at the United Nations’ climate summit held in September 2019 because of the country’s disproportionate contribution to the climate emergency.

But Ramaphosa said in a statement at the time that a proposed $11-billion just-transition transaction was being developed, which would be the largest climate finance deal to date, and which would have a significant effect on emissions.

Meridian’s plan is yet to be released for public scrutiny.

There is also the work of South African Institute of Chartered Accountants chief executive, Nomvalo Freeman, who was appointed as Eskom’s chief restructuring officer (CRO) in July 2019. Setting up the office of the CRO has been a pillar in the government’s strategy to stabilise and reform Eskom. Nomvalo has reportedly completed his report but its contents are still under wraps.

Participants in the Nedlac “social compact” process indicate that what is under discussion now is somewhat more developed than what Cosatu had proposed. The intention is to agree on a social compact or framework, to be followed by experts constructing an SPV which presumably will put numbers, timelines and guarantees to what has been broadly agreed.

But missing right now in this discourse is what the various SPV options look like, what the differences are, if any, who are the funders, what terms apply, how aggressive are the emissions reductions and what government guarantees, if any, apply?

If global climate funds are to be accessed, as some reports have suggested, will these amount to no more than a lifeline (bailout) for parties who made bad coal investments?

Given the importance to our national economic well-being and the massive financial commitments under discussion, it seems extraordinary that there is so little public information on the matter.

You would also have thought that South Africa’s energy crisis and the wider climate emergency demand transparency, so that the errors of the past are not re-visited and positive outcomes are maximised.

In the absence of documents to scrutinise, it is not surprising that there has been significant fallout in public discourse on this issue. One example, which is said to have derailed getting a framework agreement in place ahead of SONA, is a statement by Fedusa, usually a Cosatu ally, which argued that rather than try to find a financial rescue package for Eskom, it be put into business rescue.

Since so much of Eskom’s debt is government guaranteed and defaults on loans to state enterprises could trigger wider debt guarantees, this would be the same as putting the country as a whole into rescue. But government rescue is a much, much bigger thing than business rescue. There is even an institution which specialises in this — the IMF. BM

Kevin Davie is a Nieman fellow and has held senior editorial positions in major South African newspapers including the Sunday Times, Business Day, the Rand Daily Mail and ThisDay. He has been a pioneer in South African cyberspace, launching online news portal WOZA and the country’s first online stockbroker.