The additional financial support the government is providing to Eskom will come at a “significant cost to the fiscus and taxpayers”, finance Minister Tito Mboweni told parliament on Tuesday, tabling a special appropriations Bill for the power utility.
The state’s aid comes as preliminary indications are the country’s tax revenues could be significantly lower than budgeted for in the 2019/20 budget, Mboweni said, which in turn is expected to substantially increase the government’s borrowing requirement.
The proposed Bill will allocate an additional R26-billion to Eskom in the current 2019/20 financial year and a further R33 billion in the 2020/21 financial year. This is on top of the R23-billion annually that had already been announced in this year’s February budget.
The fast-tracked state aid for the utility will require government to “revise its funding strategy and current weekly bond issuance at levels beyond what we’d planned”, Mboweni said.
“What I am trying to indicate here colleagues is that we are facing a very serious financial situation,” he told MPs gathered in the national assembly.
The proposed financial support is however intended to address Eskom’s status as a going concern and to ensure that it can honour its obligations. Eskom is labouring under R440-billion in debt and is expected to report losses of around R20-billion when it releases its financial results due next week.
The fast tracking of state aid for the embattled utility was announced in president Cyril Ramaphosa’s state of the nation speech in June. He said a portion of the R230-billion that has been earmarked for Eskom in the coming decade (or R23-billion a year), would be paid to the utility in the earlier years.
But the decision to fast track the funds is expected to blow out the budget deficit. According to a report from the Institute of International Finance, thanks to revenue weakness and the front-loading of financial support to Eskom, the fiscal deficit will rise to nearly 6% of Gross Domestic Product – much larger than the government’s 4.5% target for this year.
Mboweni emphasised the need to restructure the ailing energy company and revealed that the appointment of a new chief restructuring officer (CRO) was imminent.
“At a strategic level we must face the reality that a large vertically integrated energy company is an outdated model in a changing industry, both domestically and internationally,” he said.
After consultations with Public Enterprises Minister Pravin Gordhan, and pending their finalisation, Mboweni said that a new CRO would be named later today.