Another R150bn promised to Eskom over next 10 years
The government will not forgive the embattled power supplier’s debt and it must be repaid, Tito Mboweni says
Eskom is to get R150bn over the next 10 years from the government in a massive bail-out that it is hoped will put an end to its financial crisis.
The support will come in the form of a transfer of R23bn a year to be used to cover a large share of Eskom’s interest and debt repayments, and was announced in the Budget Review on Wednesday.
It is part of an overall plan to rescue Eskom by splitting it into three state-owned companies, cutting costs and securing tariff increases.
The R69bn is part of the government’s spending plans for the next three years; thereafter it is accounted for in government’s long-term borrowing plans.
Eskom is deep in financial distress with R419bn of debt, which it has been unable to service from its own revenue.
The risk of a default is widely viewed as the single largest risk to the economy.
Finance minister Tito Mboweni was adamant, however, that Eskom’s debt was not being forgiven and that it must continue to service and repay it with the help of financial support from government.
“I want to make it clear: national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it. We are setting aside R23bn a year to financially support Eskom during its configuration,” Mboweni said.
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The financial support is dependent on the appointment of a chief reorganisation officer being jointly appointed by the ministers of finance and public enterprises.
The officer will be tasked with implementing the recommendations of the Presidential Task Team on Eskom, which has recommended that Eskom be split into three parts: a generation company, which owns the power stations; a transmission company, which owns and operates the national grid; and a distribution company, which owns the regional distribution infrastructure.
Mboweni said that the division “will set the electricity market on a new trajectory and allow for more competition, transparency and a focused funding model”.
While all three companies would be state owned, the transmission company — expected to be the most profitable and least indebted — will seek an equity partner.
Mboweni said in his remarks to journalists that an equity partner did not amount to privatisation.
The president is correct when he says that Eskom will not be privatised. What logically follows from the division is that on the generation side you will have as many players as possible.Finance minister Tito Mboweni
“The president is correct when he says that Eskom will not be privatised. What logically follows from the division is that on the generation side you will have as many players as possible. The monopoly will remain for the national grid. On the distribution side there will also be many more players,” he said.
Introducing more players into the electricity market would lead to competition that would lead to lower prices. It would also ensure that when it came to providing electricity to SA, it would “no longer have all its eggs in one basket”.
“Everybody, including the working class, should be happy there are more players on the generation side,” said Mboweni.
In the future, all state-owned enterprises that were given financial support from the Treasury would have to be supervised by a chief restructuring officer. Mboweni described this as putting state-owned companies “under curatorship”.
The only other state-owned company that received financial support in the budget was the SA Post Office, which was allocated an additional R1.5bn. The Post Office is now responsible for the payment of social grants.
While no other state-owned companies received financial support in the budget, the Treasury has increased the contingency reserve for 2019/2020 by R6bn in anticipation of further requests. The Budget Review notes that SAA — which Mboweni made clear in his remarks he does not favour retaining as state-owned — will require an additional R4bn “through a mix of government-guaranteed debt and recapitalisation”.