The wage deal between South African unions and Eskom, the country’s power utility

PUBLISHED: Thu, 30 Aug 2018 13:02:13 GMT

JOHANNESBURG (Reuters) – South African trade unions ended a pay dispute with state power firm Eskom on Thursday, removing a major obstacle to President Cyril Ramaphosa’s efforts to guarantee uninterrupted power supplies while reforming the struggling utility.

Three unions — the National Union of Mineworkers (NUM), National Union of Metalworkers of South Africa and Solidarity — signed a three-year deal that will see Eskom workers receive a 7.5 percent wage increase this year and a 7 percent increase in each of the following two years.

The agreement places an added burden on Eskom’s strained finances but reduces the risk of a repeat of the power outages experienced during several days in June and July that which cast a cloud over Ramaphosa’s economic reform programme.

Cash-strapped Eskom is one of the biggest threats to South Africa’s sovereign credit ratings, which are near “junk” status. It is desperate to push ahead with a turnaround plan.

The state-owned utility supplies more than 90 percent of the country’s power, has around 270 billion rand ($18.6 billion) of state-guaranteed debt and is a major employer, with around 47,000 staff, a figure its new board wants to trim to repair the firm’s balance sheet.

When talks with trade unions began several months ago, Eskom offered no increase in salaries. But it backtracked after protesting workers forced some generating units to be switched off, leading to the first power outages since 2015.

“The 2018 Eskom wage negotiations have been the most difficult ever in the history of the NUM,” the union said in a statement.

Eskom said the conclusion of the wage talks meant it could focus on its turnaround plan.

The wage deal agreed on Thursday is around 2 percent above consumer inflation-linked increases National Treasury promised as part of a fiscal consolidation plan key to Pretoria retaining its last investment grade credit rating.

Moody’s, the last of the “big three” ratings agencies to have South Africa’s sovereign rating in investment grade, said this month that the pace of fiscal consolidation in South Africa had slowed.

Analysts expressed cautious optimism about the wage deal being reached, but said it would be a drag on Eskom’s near-term financial performance and could worry ratings agencies.

“It is definitely ratings negative, but it is not the straw that breaks the camel’s back,” energy analyst Mike Levington said. “It’s good they’ve signed the agreement, but they’ve ignored the bigger problem of Eskom’s sustainability. It’s very clear that retrenchments (layoffs) are going to be part of that.”

($1 = 14.5254 rand)

– Tanisha Heiberg, Mfuneko Toyana

Editing by Alexander Winning and Edmund Blair

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