Eskom acting chief executive, Calib Cassim. File photo by Freddy Mavunda/Gallo Images
There needs to be a conversation with the national treasury about what happens to Eskom after the debt relief conditions come to an end, to avoid a repeat of the utility’s debt troubles.
This is according to Eskom Acting chief executive Calib Cassim, who told the Mail & Guardian that although the debt relief announced by finance minister Enoch Godongwana in February will help alleviate the energy crisis, there needs to be a discussion regarding what will happen to the utility afterwards.
“After the five-year period, there will be a need for an optimal capital structure going forward. Those discussions need to happen with the treasury. We cannot repeat the mistakes of the past. A discussion needs to happen after this window because capital expenditure doesn’t stop after four years,” he said.
He added that the risk involved with not planning ahead is that Eskom’s debt problem will not be solved as the utility would still not be able to sustain itself after four years, which would force it to once again borrow money — continuing the debt cycle.
Just transition money
As the country moves to new, cleaner energy resources, Eskom will need to have funding to support projects to help the country recover from the energy crisis. This is in line with the government’s pledge to decommission the coal fleet by 2050. Cassim said although the country received $8.5 billion pledges from wealthy countries at COP27, the utility had only received “some” grant funding which helped with decommissioning Komati power station.
“We need to address how to deal with the funding of upcoming energy projects. Power stations will come to the end; they need a second life and they will need to be funded,” he said.
Eskom plans to upgrade its energy grid using the just transition money to enable it to accept more generation units coming from renewable energy.
Cassim said the delay in receiving the funds negatively affected Eskom’s plans.
The utility’s unaudited financial results show that Eskom’s primary energy costs were R3.5 million lower than the budgeted R43.4 billion because it spent 19.3% less than budgeted on its open cycle gas turbines.
In July, Eskom received a R16 billion payment from the National Treasury as part of the R254 billion that the power utility stands to receive to pay a big part of its total debt load of R423 billion.
The first tranche of R184 billion will be used for Eskom’s debt and interest payments followed by R78 billion in 2024, R66 billion in 2025 and R40 billion in 2026.
The debt relief comes after the government argued that despite more than R500 billion bailouts that Eskom has received in the past, Eskom deserved a R254 billion lifeline.
Cassim added that the government’s latest financial help was starting to pay off, taking “tremendous pressure off” the power utility’s financial situation, allowing it to now fund its operations from the revenue it generated from electricity sales.
He added that the utility was looking forward to the National Energy Regulator of South Africa’s (Nersa) decision to grant Eskom an operating license for its transmission company expected at the end of the year.
As part of Eskom’s plan to unbundle its three divisions into separate companies, Nersa needs to approve operating licenses for the companies to be fully operational and trade with other industry players.
The regulator has so far only approved the transmission company’s operating license. It is yet to approve the trading license which will enable Eskom to make money.
This will help Eskom as it forges ahead and not borrow any funds, as stipulated in the debt relief package. One of the main conditions in the package is that the utility is not allowed to borrow more over the next three to four years, unless it is necessary. This would require approval from the treasury.
But, Cassim said Eskom was “comfortable” that the debt relief programme would be enough and would not need to borrow any funds for the coming three to four years.
He added that restoring Eskom’s financial stability will go a long way towards addressing the energy crisis, which has battered the economy.
Cassim said although the debt was a concern, Eskom was in a better position financially and would not need to borrow any more money.
For Cassim, addressing the mounting municipal debt to the utility, was important to ensure that Eskom stays afloat.
According to an annexure released with February’s budget, the outstanding municipal debt, has grown to R56.3 billion as at 31 December 2022, up from R44.8 billion in March 2022,
In the treasury’s circular on the municipal debt relief programme, it was mentioned that local government revenue generation and collection problems have existed for a long time, constituting “a complex national problem”.
“Often it is a combination of prolonged financial management failures in conjunction with changing/deteriorating economic circumstances that lead to a municipality’s inability to pay its creditors. However, at the core of the problem is improper leadership behaviour within municipalities,” the circular notes.
To help address the non-payment problem, the treasury introduced a municipality debt relief package in May. This enables municipalities to apply to participate in a three-year scheme under which Eskom can progressively write off the debt if a municipality is able to comply with the conditions set up for them.