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South African electricity company Eskom suffers losses2 minutes read

Eskom, which generates around 95 per cent of the country’s electricity, has accumulated $30 billion of debt

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South African electricity company Eskom suffers losses | News Central TV

South Africa’s embattled power company Eskom on Tuesday reported a record net loss of R20.7 billion for the year to March, nearly 10 times more than in the previous 12 months.

The state power utility’s loss widened from R2.3 billion the year before primarily because of lower sales, increased finance costs and higher costs for primary energy, in particular coal. 

Eskom, which generates around 95 per cent of the country’s electricity, has accumulated $30 billion of debt despite being the recipient of multiple bailouts from the government.

A week ago, the government announced a R59 billion bailout for the power supplier, a mere five months after an even bigger cash injection was announced over the next three years.

“Today Eskom releases results that, while expected, are unfavourable,” chairman and acting CEO Jabu Mabuza said at the company’s offices in Johannesburg.

“The organisation disappointingly incurred a net loss after tax of R20.7 billion for the year,”  Mabuza said.

Mabuza was on Monday announced as the acting CEO until October following the sudden resignation of Phakamani Hadebe in May, citing “unimaginable demands” of the job.

Hadebe became the tenth CEO to step down over the past decade. 

The latest bailout was slammed by global credit ratings agencies, who fear for South Africa’s debt to GDP ratio and its fiscal leeway.

Moody’s said the government would struggle to absorb the costs and subsequently labelled funding for the embattled power utility as “credit negative”.

Eskom has been damaged by years of corruption, mismanagement and over-spending.

Outgoing CEO Hadebe said Eskom’s funds were not even enough to keep up with interest on its debt, let alone pay it off.

“We are like an individual who borrows money to pay interest on their credit card,” Hadebe said.

State-owned companies were at the centre of corruption scandals under ex-President Zuma, with power-supplier Eskom now laden with huge debts.

It imposed a period of rotational power rationing in February, plunging offices, factories and homes into darkness for long hours and sparking public anger at the ANC government.

President Cyril Ramaphosa has vowed to reform Eskom calling it “too vital” to the economy to be allowed to fail.

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South African airways to go into business rescue

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South Africa’s minister of Public enterprise, Pravin Ghordan, has declared the government’s resolve to “rescue” national carrier, South African Airways.

The move comes after a week of speculation on the airline’s future, which is loss-making and has been unable to raise funding to continue operations.

It is proposed that the government will give the airline an extra $137 million with a second tranche of the same amount to come from existing lenders.

The failing airline which has not made a profit since 2011, has lost more than $2 billion over the past 13 years and experience some internal turbulence last month, when staff went on strike over plans to cut a fifth of its workforce.

“It must be clear that this is not a bailout. This is the provision of financial assistance in order to facilitate a radical restructure of the airline,” Pravin Gordhan says.

SAA, which has not made a profit since 2011 and has depended on government bailouts, suffered an employee strike last month, forcing it to cancel hundreds of flights and pushing it to the brink of collapse. 

Outlining what is expected from the process – described as the “optimal mechanism” to restore confidence in SAA as it seeks a future equity investor, Gordhan says the 2 billion rand provided by existing lenders will be guaranteed by the government and repayable in future budgets. 

The government, via the national treasury, will provide another 2 billion rand in a “fiscally neutral manner” with the full recovery of capital and interest on existing debt not impacted by the rescue proceedings. 

In a business rescue process, a specialist administrator takes control of a company with the aim of rehabilitating it to improve its chance of survival, or securing a better return for creditors than they would receive from liquidation. 

“This initiative demonstrates that the government will undertake the necessary bold steps in order to reposition its assets in such a way that they do not continue to depend on the fiscus and thereby burden taxpayers” , Gordhan adds.

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South Africa’s competition watchdog orders data rate cuts

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South African telecommunication behemoths, Vodacom Group and MTN Group could face prosecution if they do not agree with the country’s Competition Commission in the next two months to lower data prices.

A data services inquiry was launched in August 2017, in response to a request from the country’s minister of economic Development, Ebrahim Patel, following complaints from users about high data costs.

“What we found is that there is anti-poor pricing and we see it not only in tariffs but in data bundles as well. The prices for lower bundles are more expensive than higher bundles and there is no persuasive explanation [from the mobile operators] for this,” according to James Hodge, the Competition Commission’s chief economist.

In its final report, the Commission recommends that the two mobile operators must independently reach an agreement with the competition watchdog on substantial reductions on tariff levels, especially prepaid monthly bundles, within two months.

Patel, who is currently the minister of trade and industry says:

“If we want to grow the economy, we need to lower data prices.

“Within policy reflection, we have spoken about economic growth that is inclusive of young people and rural people. When data discriminates against poor people, it goes against public policy.” 

Preliminary evidence suggests that there is scope for price reductions in the region of 30% to 50%.

In addition to the imposed rate cuts, the mobile operators must also reach an agreement to cease ongoing partitioning and price discrimination strategies that may facilitate greater exploitation of market power and anti-poor pricing. The final report found there is a “duopoly between MTN and Vodacom” highlighting that data prices from these two market leaders are cheaper for users who have contracts than for prepaid customers. “The majority of prepaid customers are poor and have to buy daily or hourly data bundles”, says Hodge.

The report came down heaviest on the high costs of prepaid data bundles- to access 1GB prepaid from MTN, customers would have to pay R149, while an hourly data bundle costs R30. 

For Vodacom prepaid customers, 1GB costs R149, while an hourly 1GB data bundle costs R12. These bundles expire after an hour. 

Hodge says it is clear that MTN and Vodacom don’t charge these excessively high data prices in other countries where they operate. 

“There are strong indications that there is exploitative pricing [in South Africa],” he adds.

In response, both players have blamed the government for its failure to release mobile spectrum, highlighting a ‘significant difference in opinion’ between the Competition Commission and ICASA on a number of issues that are critical to data prices in South Africa. 

This difference of opinion, Vodacom says, is most apparent reviewing mobile data prices in relation to the allocation of spectrum to local mobile operators. 

Addressing mobile data prices, ICASA states that South Africa’s prices are neither extremely high nor very low in relation to other African countries or compared with countries that are more similar to South Africa in terms of their size and level of development. 

When put in further context with data on speeds and LTE coverage, it is clear that customers in South Africa are benefiting from a much higher quality of access than those in other African countries, says Vodacom.

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IMF sets new conditions for Kenya’s $1.5b loan

The IMF team wants the Treasury to cut the rising budget deficit which stood at 7.7 per cent of GDP in the 2018/2019 financial year

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IMF sets new conditions for Kenya’s $1.5b loan

The International Monetary Fund has introduced a set of new conditions for Kenya to access its $1.5 billion precautionary loan that was suspended in September last year, barely weeks after the country scrapped control of interest rates in compliance with the international lender’s demands.

The IMF team wants the Treasury to cut the rising budget deficit which stood at 7.7 per cent of GDP in the 2018/2019 financial year.

The fund also wants the government to implement “tax and expenditure reforms that do not hurt private sector investments and stifle economic growth,” before the resumption of talks planned for early next year.

The new conditions are set to throw a spanner in the government’s plans to access funding from the IMF, including the critical precautionary loan to cushion the shilling from external economic shocks.

“Progress in this direction (reduction of fiscal deficit), including the design of tax and expenditure reforms that support a growth-friendly fiscal consolidation, would be important to anchor a new Fund-supported programme,” the IMF said in a statement.

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