South Africa's Gordhan Optimistic on Eskom Solution With Unions

(Bloomberg) -- South African Public Enterprises Minister Pravin Gordhan is optimistic that the nation’s cash-strapped power utility and labor unions can find a “constructive solution” to cutting costs at Eskom Holdings SOC Ltd., which will receive a 69 billion-rand ($4.9 billion) cash injection from the state.

The National Treasury, which considers Eskom the biggest threat to the country’s finances, announced the bailout in the budget on Wednesday. Finance Minister Tito Mboweni said that pouring money into the utility that struggles to keep the lights on is “like pouring water into a sieve.”

President Cyril Ramaphosa plans to split Eskom into three units, a move that unions oppose because it could lead to privatization and job losses. The utility’s workforce soared by about a third to more than 48,000 people in the decade through 2018, but power-sales volumes rose less than 3 percent.

“Over the last few days we have met with the trade unions that operate within Eskom, and what we want is to sit around the table and find a constructive solution, not just fire people and put them out into the streets given South Africa’s high unemployment rate,” Gordhan said in an interview on Bloomberg Television. “We are optimistic that everyone recognizes that Eskom is an absolutely essential entity for the future of our economy.”

Eskom employees could potentially work at municipalities, some of which are struggling with skills deficits, Gordhan said.

Moody’s Investors Service, the only major rating company still to assess South Africa’s debt at investment-grade level, is set to review the nation’s creditworthiness next month. Its decision will hinge on whether the government has a credible strategy to rescue Eskom without significant fiscal slippage.

The risk of a cut is “hopefully minimal,” Gordhan said. “This is not a profligate government; it’s very aware of its responsibilities to maintain a balanced fiscal situation as we go forward.”

Besides the cash injection, splitting the entity, and cost cuts, there are “other mechanisms that are being considered” for Eskom that the state will announce, Gordhan said.

©2019 Bloomberg L.P.