Titi sceptical about fixing coal plants

Investec CEO Titi sceptical about fixing coal power plants

Nico Gous and Andries MahlanguEskom will struggle to source funding from major financial institutions to extend the life of its ageing coal fleet when there are viable cleaner energy alternatives, Investec CEO Fani Titi warned, as the power utility advised SA to brace itself for higher stages of load-shedding.

"There is in our minds no evidence at the moment to indicate this is the best course of action. The work that had been done by Eskom and other stakeholders had indicated that we can get much better funding to try to accelerate investment in renewables," Titi told Business Day on Thursday.

"Unless there is a new feasibility that convinces us otherwise, we think the current course is the right one. We would suspend judgment as to the feasibility of the alternative costs, but in principle we are sceptical about this .... We think the route ahead is getting more private sector participation in the energy space and getting just transition going at the faster rate and putting money required into Eskom for maintenance."

SA is in a precarious position as most its power stations are old and unreliable, following years of inadequate maintenance. Extending the lifespan of coal-fired power plants is central to electricity minister Kgosientsho Ramokgopa’s strategy to deal with the crippling energy crisis and spare the economy further damage. Coal-fired power plants account for a large proportion of electricity generation.

However, critics say the potential delay in the decommissioning of the environmentally damaging plants risks jeopardising the $.8.5bn funding that France, Germany, the UK, US and EU collectively pledged to SA as part of its just energy transition (JET) programme.

Investec’s comments echo similar sentiments expressed by Standard Chartered Bank and asset managers Futuregrowth and Allan Gray who warned of private capital’s lesser appetite for investing in fossil fuels.

They also come on the heels of a warning by Eskom that SA should prepare for potential escalations in rolling blackouts during winter as demand could far exceed available supply.

Titi criticised the government’s handling of the electricity debacle, saying Ramokgopa is the "electricity minister without a portfolio. He has no authority nor is it clear what it is he is supposed to do."

Titi was speaking after the release of the company’s results for the year ended March. Investec increased its dividend as it reported a jump in annual profit despite weaker global markets weighing on its funds under management (FUM).

The company, valued at R31.1bn on the JSE, declared a full-year dividend of 31p a share (R7.49), 24% higher year on year, at a payout ratio of 45%. Profit for the year to end-March was up 46.9% to & xA3;817.4m, while FUM fell 4.5% to & xA3;61bn (R1.47-trillion).

"The group reported strong results in a challenging macro [economic] backdrop, with all our client franchises reporting growth in pre-provision adjusted operating profit," Titi said. "Our focused approach to support our clients and the diversified nature of our revenue streams underpinned the financial performance."

Adjusted operating profit generated from core operations rose 21.6% to & xA3;835.9m, the bulk of which 57.1% was generated by the corporate and investment banking segment. Private banking accounted for 29.9%.

Central banks around the world have hiked rates throughout 2022 and into 2023. The Reserve Bank has raised its repo rate by a cumulative 4.25 percentage points since July 2020. Higher rates boost bank incomes from loans, though they may result in more defaults.

Still, Investec’s greater exposure to higher-income clients means it is typically less affected than its retail-focused rivals.

Investec believes it has strong capital and robust liquidity levels to "navigate the current environment and pursue our identified growth initiatives".

According to its 2024 guidance the group expects revenue to be underpinned by moderate loan-book growth, continued elevated interest rates and client activity levels, and costs to be contained within a cost to income ratio of about 60% .