Helmo Preuss and Ashley Lechman
Treasury Director-General Dr Duncan Pieterse, who was only appointed in August 2023, but who was intimately connected with the Eskom bailout negotiations, said yesterday that Eskom debt relief remained conditional on progress.
The media have privileged access to the Finance Minister as well as Treasury officials during the lockup, while the minister is joined by the Director General of Treasury, the governor of the South African Reserve Bank and the Commissioner of the South African Revenue Service.
As at September 30, 2023, government has disbursed R16 billion of the R78bn debt relief for 2023/24. A task team has been established with officials from the National Treasury, the Department of Public Enterprises and Eskom to monitor compliance with the conditions and report quarterly on whether Eskom qualifies for the conversion of the loan to equity.
The Eskom debt relief will enable Eskom to undertake much-needed maintenance and investment, and to improve its financial position. On October 31, 2023, Eskom reported a net loss after tax of R23.939bn for the year ended March 2023 compared with a net loss after tax of R11.93bn in the previous financial year.
Treasury said that Eskom’s financial sustainability remained at risk from poor generating plant performance, declining sales, lack of cost-reflective tariffs, rising municipal arrears and high debt-service costs.
Its Energy Availability Factor (EAF) only averaged 54.87% in the first 42 weeks of 2023 compared with 58.0% for the full year 2022, although in week 42 the EAF exceeded 60% for the first time this year.
The Eskom Debt Relief Act (2023) was promulgated in July 2023 and Eskom is required to comply with strict conditions attached to this act until March 31, 2026.
Tabling the Medium-Term Budget Policy statement, Finance Minister Enoch Godongwana said that the country experienced more power cuts in the year to September 2023 than in the whole of 2022.
Godongwana said that addressing the Eskom problem without dealing with the municipal non-payment and uptake of the debt relief programme, would have been counter-productive.
“The debt-relief arrangement for Eskom outlined in the 2023 Budget noted that a large proportion of outstanding municipal debt is owed to Eskom. National government has introduced support to relieve municipalities of debt to Eskom. Upon application by a municipality, the debt to Eskom up to 31 March 2023 will be written off over a three-year period, in equal annual tranches. This is provided the municipality complies with set conditions,” the minster said on Wednesday.
Godongwana said that these conditions include enforcing strict credit controls, enhanced revenue collection, and up-to-date payment of monthly current account owed to Eskom.
“By October 2023, 67 applications had been submitted, totalling R56.8 billion, or 97% of total municipal debt owed to Eskom at end-March 2023. Twenty-eight applications have been approved; the remainder are being assessed and verified with provincial treasuries. The ultimate goal is the profound transformation of these municipalities, by enabling them to build financial resilience, amplify their capacity to generate sustainable revenue, and rekindle a culture of paying for services rendered,” he further said.
He said that additional generation capacity from renewable energy investments combined with the return of Eskom’s units that are out of service, should ease power cuts over the medium term.
“Our electricity system is undergoing an enormously positive transformation. We are reaping the fruits of our efforts to reform the electricity sector, including the easing of restrictions on self-generation and encouraging private investment in the area. At the same time, we recognise the potential loss of revenue due to private electricity generation, and the fact that traditional revenue models relied on by public entities like Eskom, face serious disruption,” the finance boss said.
“It is for these reasons that our electricity reforms are holistic, evidenced-based, and geared to find a balanced solution to our electricity supply challenges. They take into account not just a particular entity but the transformation of the sector as a whole.
“As part of this approach, the review of Eskom’s coal-fired power stations commissioned by the National Treasury, is complete. Effective implementation of the recommendations will help transform the electricity sector. It will also inform revisions to Eskom’s corporate plan to bolster accountability and effective, informed oversight. The government will shortly share the findings of the report,” he said.
Godongwana said as Treasury said in February, the allocations to Eskom would be accompanied by strict conditions to ensure public funds are used for their intended purpose.
“One key condition we set back then was that should Eskom defy any of the conditions, the loan would not be converted to equity. The Eskom Debt Relief Amendment Bill which we are tabling today seeks to enhance the enforceability of the conditions agreed under the debt relief agreement,” the minister further stated.
He said it provided for the payment of interest by Eskom on amounts advanced as part of the debt relief loan.
The Amendment also provided for the reduction of the amount of debt relief available to Eskom, in the event that the entity did not comply with the National Treasury conditions.
“These principles and strict conditionalities, greatly enhanced by the Amendment, are a key part of how we will deal with Eskom and all other state-owned entities, to avoid a repeat of the mistakes of previous bailouts.”
Godongwana also said that the transition to a low-carbon economy should be integrated into a comprehensive green growth strategy and industrialisation plans.
“This involves assessing policy conditions, challenges, and opportunities for diversification and investing in new industries. South Africa's traditional trading partners are intensifying their decarbonisation plans. Many countries are introducing carbon pricing mechanisms to make emissions more expensive and incentivise emissions reductions.
“In automotives, a major export and source of employment, the transition to New Energy Vehicles (NEVs) poses an existential threat to South African vehicle production. This transition will require balancing domestic market demand, establishing renewable energy-based charging infrastructure, and supporting production,” he said.
Godongwana said the goal was to make sure the sector remains a major contributor to the industrial development of the domestic economy.
“As such, the government plans to implement tax and expenditure measures to support the automotive sector during this transition. Details will be provided in the 2024 Budget Review. Part of the broader strategy includes collaborating with other African countries to develop battery production capacity on the continent, by pooling the critical-mineral resource base that Africa is endowed with,” he said.