South African Business Lobby Welcomes Union Proposals on Eskom

(Bloomberg) --

South Africa’s main business-lobby group welcomed proposals by the nation’s biggest labor-union federation to rescue debt-stricken power utility Eskom Holdings SOC Ltd., a rare instance of harmony between the two sides on a key policy issue.

The Congress of South African Trade Unions on Monday presented its plan to the so-called President’s Working Council, which includes government, business, community and labor leaders. The labor federation has suggested that state-owned institutions take over 254 billion rand ($17 billion) of Eskom’s debt.

“We welcome the constructive approach,” Martin Kingston, vice president of Business Unity South Africa, said by phone Monday. The business community is in alignment with Cosatu on many of Eskom’s problems that the labor federation identified, though they’re not in agreement on all of the proposals, he said.

Cosatu’s plan would leave Eskom, which provides 95% of South Africa’s electricity, with 200 billion rand of debt, an amount the utility has previously said it could manage. Eskom is failing to cover its running costs and inadequate maintenance is leading to frequent plant breakdowns and rolling power outages. Those are stalling economic growth.

Whatever arrangements are made they need to comply with “the fiduciary responsibility of trustees, be in line with the mandates of the institutions, within their risk-reward requirements and avoid concentration and contagion risk,” Kingston said.

Rival Support

Cosatu garnered support for its proposals from the rival Federation of Unions of South Africa and National Clothing and Textile and Allied Workers Union, along with community groups, said Matthew Parks, Cosatu’s parliamentary co-coordinator. He described Monday’s meeting as “very positive,” with participants agreeing to hold a second meeting under the auspices of the National Economic Development & Labour Council later this week.

“Everyone recognized the extent of the crisis we are in and agreed it’s time for action,” Parks said by mobile-phone text message. There is “lots of hard work ahead, but this could be a major turning point.”

Participants at Monday’s meeting agreed that Eskom must reduce its debt, though proposals on how the loans are serviced must be feasible, Kingston said. With banks and other financiers becoming increasingly reluctant to fund the utility, there is a willingness to consider development-finance institutions and other bodies like the state pension fund manager, the Public Investment Corp., as sources of finance, he said.

“The pool of capital is shrinking rapidly,” Kingston, who is executive chairman of Rothschild & Co.’s South African unit, said. “Within those constraints we are more than happy, very happy and keen to work with Cosatu and other social partners” such as government to resolve Eskom’s debt problems, Kingston said.

There appears to be a willingness on the part of all concerned parties “to put their shoulder to the wheel” despite any differences of opinion, he said.

The modalities on whether the Eskom debt would be taken over and the conditions attached to that are yet to be worked out.

Business and labor delegates at Monday’s meeting also agreed to start a discussion about the use of prescribed assets, or private pensions, to fund state infrastructure, Parks said. Ramaphosa last year mooted the idea of tapping the nation’s 2.4 trillion rand private savings industry to foster economic growth.

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