/ 4 March 2011

Eskom will make do without R20-billion

Eskom Will Make Do Without R20 Billion

Despite not getting a much anticipated R20-billion cash injection from the budget, Eskom said this week it was confident that a public funding plan was in place to allow it to complete its building programme.

Eskom was also not expected to go back to the National Energy Regulator (Nersa) in the immediate future to ask for a tariff hike as a result of its failure to access the additional funding, according to Eskom spokesperson Hilary Joffe.

Last year the Cabinet said it supported a hybrid-funding solution to provide an additional R20-billion for the electricity parastatal.

Several confusing statements emanated from the Cabinet in November last year, initially suggesting that the funding would come from “liquidating state holdings in non-strategic and non-core assets”. But this was changed to say that any additional funding for Eskom would come from the fiscus.

In the budget last week, however, the government maintained the status quo, going so far as to temper the extension of additional funding to a number of state-owned enterprises and not just to Eskom.

“Financial support for state-owned enterprises must be weighed against all other government priorities, including the creation of jobs and the reduction of poverty,” said Jabulani Sikhakhane, the treasury spokesperson.

“This is why government preference is that state-owned enterprises should largely borrow on the strength of their own balance sheets.”

Loan guarantees extended
Late last year the government extended loan guarantees for Eskom from the pre-existing R176-billion by another R174-billion to a total of R350-billion.

This was over and above the R60-billion subordinated loan that the treasury gave to Eskom, the final installment of which is to be drawn down this year.

“Since the granting of the subordinated loan and the loan guarantees to Eskom, market conditions have improved, so much so that the utility raised $1,8-billion in January from international capital markets without the backing of a government guarantee,” Sikhakhane said.

“The government will continue to monitor Eskom’s financial position and, should circumstances demand it, the government will take appropriate steps to ensure that Eskom completes its planned build programme.”

In the budget the treasury said it would continue to explore mechanisms to support Eskom in raising funds.

The state-owned enterprises are expected to continue pursuing funding in domestic and foreign capital markets and through multilateral agencies such as the
World Bank.

Although the treasury did not comment on questions relating to this, a further capital injection for Eskom could have pushed the budget deficit from the estimated 5,3% of GDP to more than 6%, which might have made it untenable to further fund the institution.

Government support helps credit rating
Joffe told the Mail & Guardian that, despite the decision to hold back on further funding, the government’s explicit support had substantially improved the company’s credit rating.

“It has always been a question of improving our balance sheet ratios,” she said.

Last year, after the government came up with the additional guarantees, rating agency Moody’s changed its credit watch outlook for the utility from negative to stable.

Energy-related spending has taken up the lion’s share (36% of the total) of public sector infrastructure spending of R102,8-billion.

Over the medium term the total infrastructure expenditure is expected to reach R808,6-billion. But this represents a steady decline in spending as a percentage of GDP, falling from 9,8% in 2010-2011 to 8,7% in 2011-2012 to 8,4% in 2012-2013 and to 8,1% in 2013-2014.

A total of R260-billion — or 9,8% of GDP is being spent on economic services, social services, justice and protection services, and central government administrative financial services during the 2010-2011 financial year.