Treasury’s Dondo Mogajane outlines conditions for Eskom bailout

Eskom will be required to sell off its internal lending operation called Eskom Finance, which has a loan book of about R10bn, as one of the conditions of its receiving a cash injection by the government.

The Eskom Finance company was started in 1990 primarily as a means to enable its employees to have access to home loan finance.  

The requirement was disclosed by Treasury director-general Dondo Mogajane in reply to questions by members of parliament’s appropriation committee on Wednesday, following his briefing on the Special Appropriation Bill. The bill allocates an additional R59bn to Eskom over two years: R26bn in 2019/2020 and R33bn in 2020/2021.

The government has been heavily criticised for allocating the funds without imposing stringent conditions on the bailout, with credit ratings agencies and lenders being particularly worried about the state of governance at state-owned power utility.

Mogajane stressed that the Treasury was still working on the conditions and that more stringent ones would be forthcoming. The Treasury wants to finalise the conditions as soon as possible he said, so they are in place once funds start to flow to Eskom.

One of the conditions would be that Eskom sell its Eskom Finance operation.

The electricity utility was not in the business of offering loans to staff and others, Mogajane said. The R10bn that could be derived from the sale could be invested in operations.

Other preliminary conditions would include that any additional funding by the state should be only used to pay off debt and interest payments and not be used for things like bonus payments. Eskom has debt of over R400bn and is increasingly unable to meet its interest obligations.

Mogajane said that another condition would be that if Eskom wanted to use the state funds for operations, it would have to get permission from the Treasury.

Other conditions were that Eskom must submit a board approved annual schedule of redemptions and interest repayments. The Treasury also wants daily reporting by Eskom to itself and the department of public enterprises on its liquidity situation as the utility is currently doing.

It would be required to publish its turnaround strategy as soon as it is approved and provide the Treasury with critical monthly management reports signed off by the group CEO and group CFO. Eskom would also be required to furnish proof of its tax compliance in light of what Mogajane said was a new and worrying trend of SOEs to not pay PAYE for example.

Other conditions were to have quarterly engagements with the department of public enterprises and the Treasury. Eskom must also set up a steering committee to report on the reorganisation of the utility on an ongoing basis.

Mogajane said he had written to directors-general at both national and provincial governments insisting that they pay amounts owing to Eskom and threatened he would slice off these amounts from departmental budgets if they failed to do so. He noted that one municipality owed R3bn to Eskom.

He cautioned that if the Treasury were to slice off the local government equitable share to pay off the municipal debt to Eskom, that would affect service delivery. The question of repayment of municipal debt to Eskom was being discussed between the Treasury, the department of co-operative governance and traditional affairs and the South African Local Government Association.

ensorl@businesslive.co.za