South Africa’s treasury is guilty of bad budgeting, and its budgets are criminally incongruous with the vision, policy objectives and goals of the 2012 National Development Plan. (David Harrison/M&G)
The treasury has confirmed that it will relieve Eskom of a portion of its close to R400-billion in debt , which has fed into the state power utility’s near-collapse and the country’s growth-killing energy crisis.
The treasury is leading a process to design a debt relief programme that will address Eskom’s financial woes and help restore its efficiency, according to the medium-term budget policy statement tabled by Finance Minister Enoch Godongwana on Wednesday.
Follow the M&G‘s full coverage of the medium-term budget policy statement:
Mini-budget: Transnet, Sanral and Denel get lifelines
Treasury lauds success of fiscal consolidation efforts
The document does not specify how much of the utility’s R392-billion debt the government will take onto its balance sheet, but Godongwana said in his speech to parliament that the amount is expected to be between a third and two-thirds of the debt. Further details about Eskom’s debt relief will be announced in the main budget in February 2023.
The specifics of the debt relief programme, including the selection of the relevant debt instruments and the method of effecting the relief, are still to be finalised, the policy statement notes.
The treasury calls Eskom “the largest long-term risk to the economy”, given the utility’s high debt levels and unsustainable business model.
Eskom’s debt has hamstrung its ability to maintain its coal-fired power stations, which have been at the heart of the country’s 15-year load-shedding crisis.
The government’s plan to relieve Eskom of some of its debt will allow the utility to implement planned investment and maintenance, ensuring the company no longer relies on government bailouts.
In 2019, the government announced a R230-billion support package for Eskom — R140-billion of which has been used. Moreover, Eskom had used most of its R350-billion government guarantee facility by the end of June this year.
“Debt relief alone will not solve Eskom’s problems,” the treasury warns.
“It is therefore part of a comprehensive approach. While the utility has made progress in unbundling, which remains critical to its long-term sustainability, several underlying challenges must be addressed.”
According to the policy statement, Eskom’s debt relief programme will come with strict conditions. Godongwana signalled as much earlier this year, suggesting that Eskom might have to sell some of its assets.
These conditions, the policy statement notes, will address Eskom’s structural problems by managing its costs, addressing arrears due to the utility and providing greater clarity and transparency regarding tariff decisions. The conditions will be informed by an independent review of Eskom’s operations.
Speaking to the Mail & Guardian on Wednesday, the head of asset and liability management at the treasury, Duncan Pieterse, said the main consideration regarding the debt relief programme is the amount needed to put Eskom in a sustainable financial position. The amount would have to be enough to ensure that Eskom does not continue to exert pressure on the public purse.
The National Energy Regulator of South Africa’s tariff decision, expected in December, will also have to be considered, given its effect on Eskom’s future revenue.
Pieterse said the amount of relief will also be informed by the selection of the debt instruments and the execution of the debt takeover, which will have to be discussed with Eskom’s lenders.
“And then finally the Eskom debt takeover is not only about its balance sheet, but about the electricity sector more broadly and how we ensure that we undertake the right kind of investments in order to create a sustainable electricity sector,” he said.
“So the package that we are going to put together that will accompany the debt takeover also reflects some of those elements and that will also have a bearing on the quantum.”
The country’s energy constraints are a major threat to the country’s economic growth, which has moved at a glacial pace for more than a decade. If the treasury’s forecasts are correct, the path ahead doesn’t look much better, with GDP growth expected to average a meagre 1.6% over the next three years.
“Increased power cuts will compromise an already fragile and recovering economy,” the policy statement reads.
“Conversely, accelerating the implementation of energy reforms could mitigate the adverse effects of load-shedding and support higher business confidence and investment.”
Reforms include the removal of the licensing threshold for embedded generation projects and providing for the establishment of an independent transmission and system operator. These interventions are aimed at breaking Eskom’s monopoly over the energy sector.