Eskom bailout to reach R150bn in 10 years
Eskom is in deep financial distress with more than R400bn in debt
A massive bailout for Eskom of R150bn over the next 10 years will be a key part of the plan to rescue the troubled company, Treasury officials said on Wednesday.
The budget, which was tabled in parliament by finance minister Tito Mboweni, allocates R23bn a year over the next three years to Eskom. The rescue plan includes a further R23bn for the seven years after that which is pencilled into government’s long-term borrowing plans, officials said. Amortised over 10 years, the full package amounts to R150bn in 2019 prices.
The size of the package could vary, affected by several factors, "including economic growth, tariffs, electricity demand and the rate of reform of the electricity sector", said Ian Stuart, acting head of the budget office.
Eskom is in deep financial distress with more than R400bn in debt which it is unable to service from its revenue. Eskom chair Jabu Mabuza said the support package over the next three years would cover 65% of Eskom’s interest costs.
As a condition of the bailout, the ministers of finance and public enterprises would appoint a chief reorganisation officer with the explicit mandate to implement the recommendations of the presidential task team into Eskom.
The team’s report, which includes the recommendation to split Eskom into three companies to deal with generation, transmission and distribution, has not yet been made public.
However, more detail on both the restructuring and the financing will be required to reassure ratings agencies and Eskom lenders. Of particular concern will be the apportioning of Eskom’s debt. The plan could also involve the revaluation of its assets, in particular new power stations Medupi and Kusile which, due to design and technical faults, are delivering only 50% of the energy expected.
Mboweni was firm that the Eskom debt is not being forgiven. "The national government is not taking on Eskom debt. Eskom took on the debt. It must ultimately repay it," he said.
The Treasury’s head of assets and liabilities Anthony Julies, said that "no investor will be worse off". He said this may involve extending guarantees to Eskom’s R100bn or so of unguaranteed debt.
MD of the Banking Association SA Cas Coovadia said "more detail on the restructuring has to come out now, not after the election" in May.
This was echoed by the head of the ANC’s economic transformation committee, Enoch Godongwana, who said that the plan for Eskom should be in place by the end of March.
A suggestion in the Budget Review that the new transmission company "will invite the participation of a strategic equity partner that will provide capital" should be taken to mean reference to the possible participation of the Public Investment Corporation, Mboweni said.
"The PIC is a huge and significant lender to Eskom. If they are willing to swop their debt to equity, then the transmission company would still be state-owned," he said, indicating that privatisation is not on the cards.