Cape Town – Finance Minister Enoch Godongwana announced on Wednesday that the government was taking over R254 billion of cash-strapped Eskom’s R400bn debt burden to the national balance sheet, as part of efforts to strengthen the ailing utility’s weak financial position.
The support effectively takes the form of a loan from the National Revenue Fund to Eskom, with strict conditions and a direct debt takeover of a portion of the utility’s loan portfolio.
Delivering the 2023 Budget in the Cape Town city hall, Godongwana said the debt relief would ease pressure on Eskom’s balance sheet and enable the ailing utility to invest in transmission and distribution infrastructure.
“It will also allow Eskom to conduct the maintenance required to improve the availability of electricity,” he said.
The minister also said R337bn of Eskom’s debt was already government guaranteed.
“Explicitly taking on this debt will reduce fiscal risk and enhance long-term fiscal sustainability,” the minister said.
Godongwana said the R254bn relief comprised R184bn to be paid in three tranches for debt settlement requirements over the medium term and a direct take-over of up to R70bn of Eskom’s loan portfolio in 2025/26.
“Because of the structure of the debt relief, Eskom will not need further borrowing during the relief period.
“Government will finance this arrangement through the R66 billion baseline provision announced in the 2019 Budget, and R118 billion in additional borrowings over the next three years,” he said.
The debt relief comes at a cost to the public purse as it will increase the government’s borrowing requirement in the next three years.
Godongwana said due to the Eskom debt relief, the government debt will stabilise at a higher level of 73.6% of the GDP in 2025/26.
“This is three years later than anticipated in the 2022 Medium-Term Budget Policy Statement,” he said.
“The gross debt is projected to increase from R473 trillion in 2022/23 to R5.84trln in 2025/26 and because the debt is high, our debt service costs are also high.”
Godongwana said the debt-relief arrangement was accompanied by strict conditions to safeguard the public funds.
“These conditions include requiring Eskom to prioritise capital expenditure in transmission and distribution during the relief period,” he said.
The minister also said Eskom was required to focus on maintenance of the existing generation fleet to improve the availability of electricity.
The debt relief will be used to settle debt and interest payments only, and that Eskom implements the recommendations emanating from an independent assessment of its operations, which has been commissioned by the National Treasury.
Treasury said the debt relief has been a subject of extensive consultations with Eskom and its stakeholders.
Eskom, the National Treasury and the Department of Public Enterprises have agreed to design a mechanism for building new transition infrastructure to allow for extensive private sector participation in the development of the transmission network.
National Treasury has appointed an international consortium with extensive experience in the operations of coal-fired power stations to review all plants in Eskom’s coal fleet and advise on operational improvement.
The review was scheduled to be concluded by mid-2023, Treasury said.
Part of the conditions for the relief is that Eskom implements the operational recommendations emanating from the independent assessment by the international consortium.
This will include a determination of which plants can be resuscitated to the original equipment manufacturers’ standards, following which Eskom must concession all its power stations with clear targets for electricity availability and operations.
The National Treasury’s Budget Review document said the debt review supported restructuring of the electricity industry.
“Establishing a competitive electricity market will enable South Africa to ensure a stable, uninterrupted power supply as it transitions to a clean energy future,” it said.
According to the Treasury, Eskom’s generation fleet continued to perform poorly due to maintenance backlogs on old power stations, and design flaws in new plants as well as its failure to address grid constraints.
It also said increasing costs had resulted in lower than expected capacity being procured from the independent power producers renewable energy programme.
Cape Times