Thread by @CoruscaKhaya

1/The value of accurate information in the age of senseless rhetoric cannot be overestimated. Let's talk about the PIC, Eskom, SA taxpayers and pensions for example.
#Eskom @kayafm95dot9

2/Eskom's financial statements are naturally a financial reporting catastrophe. Flat revenues and escalating finance costs are a problem. A 61% increase in net finance costs is particularly troubling. This is due to more money borrowed at higher rates for example. @kayafm95dot9

3/In an ideal world, more money borrowed should mean more investment in the business which should then generate more money for the business in the long run. Sadly for#Eskom, more money borrowed is a double-edged sword since it gets consumed by operations rather than capex.

4/An example of this is the R5b borrowed from the PIC earlier this fiscal year to fund salaries. This is an indication that the cash flow cycle was not managed properly which - for an institution of its size - is simply outrageous. @kayafm95dot9

5/Even though #Eskom managed to reduce its non-primary energy costs from R59bn to R48bn, that was offset by higher interest costs (61% higher) and moved them from a profit of +/-R900m to a loss of R2,3bn.
@kayafm95dot9

6/Important signs in the presentation include the reduction in staff costs from R33bn to R29bn. In light of the current wage dispute this sounds like a good thing - but there's more to the story. The decline in staff costs is attributed to an accounting change in provisions rates

7/#Eskom's liability profile is the bleakest part of the report. Total liabilities are R569bn. Of these, a staggering R389bn is debt securities and borrowings. This is a fancy term for 'siyakweleta blind'. Included here is R120bn owed to DFIs - possibly the PIC. @kayafm95dot9

8/ It is essentially this R120bn that some politicians suggest should be converted to equity. If this is all PIC funds and they are duly converted to equity, there is the domino effect that must be understood by all of us as taxpayers.
@kayafm95dot9 #Eskom

9/1stly there is no merit in converting a loan to equity if the underlying issues- how you ended up with that conundrum in the first place- are not addressed.
All it does is take advantage of a pliant moneylender who becomes a reluctant shareholder by circumstance. @kayafm95dot9

10/So whether the conversion happens or not, the question of how the PIC advanced the money as a loan in the first place is key. They should have only advanced the loan if #Eskom convinced them they had the capacity and appetite to repay. We need to find out what happened since.

11/If the PIC advanced the loan on the basis of projections that turned out to fall short of reality, we are better off ensuring that doesn't happen again rather than focusing on the conversion. Methinks the projections were obviously inaccurate to begin with @kayafm95dot9 #Eskom

12/The reason it's important to lend credibility to the projections is that future lenders have to believe they're not being duped. If PIC has to write off R120bn due to dodgy projections, then even the Chinese will eventually become sceptical. Imagine...
#Eskom @kayafm95dot9

13/If the conversion happens then there are immediate benefits - #Eskom will reduce its liabilities by R120bn. Its interest costs will decline (in relation to the R120bn).
The problem however-is that #Eskom will use the improved balance sheet as the basis for borrowing even more!

14/Whatever becomes the appetite of lenders to give more money to #Eskom after the conversion, we still need to find out what the money will be for. If it funds operational expenses - we are doomed.
@kayafm95dot9

15/But crucially the PIC conversation is occasionally misrepresented - and the politicians are keen to capitalise on this. As the custodian of pension funds, the assumption is that if the PIC loses money, the pensioners are the ones hit. But this omits one crucial anomaly #Eskom

16/The GEPF is actually a defined-benefit fund. In othet words, its pensioners have a guaranteed entitlement to a particular pension - usually linked to their final salary on retirement. This means that whether the PIC gains or loses, pensioners will get what they were promised.

17/This is different to a defined-contribution fund where you are told how much to contribute and simply hope there will be something in the pot when you retire. So who suffers the most when the PIC loses money - general taxpayers like you and I... @kayafm95dot9 #Eskom

18/This is simply because the government has the responsibility to make due on any gaps in the state pension fund. To simplify it, if the government employees pension fund had R150bn and gave it to the PIC to oversee, state employees would know that they have R150bn saved away.

19/If the PIC then loaned R120bn to #Eskom only for the loan to be converted, then the R120bn would no longer be available for the PIC to pay pensioners. Government would then have to find the R120bn from us to ensure that the state pensioners are back to R150bn. @kayafm95dot9

20/The reason I say politicians exploit this information arbitrage is that when we say the PIC is writing off a loan some of us think it's a state employees problem. At the same time, state employees know their entitlements remain unaffected & taxpayers will pay up @kayafm95dot9

21/So no one complains as taxpayers who don't work for the state think 'asingeni thina lapho' and state employees know 'ngeke basithinte thina'. The only overlap in interests is that when taxpayers pay up, state employees are affected in that capacity.
@kayafm95dot9 #Eskom

22/So if the conversion happens, don't expect state employees to rebel, ask yourself why taxpayers are not complaining about this entire exercise.

Until then, khokhani bakwethu.

#Eskom #PIC @kayafm95dot9