Eskom gets dose of tough love from Tito Mboweni in medium-term budget

Finance minister Tito Mboweni surprised the market in his medium-term budget policy statement (MTBPS) by announcing no new measures to restructure Eskom’s debt. Instead, he offered the troubled utility tough love, saying that he wanted to see reforms before it could get more financial support.

Eskom, which has R450bn of debt that it is unable to service, has said that it needs to be relieved of R250bn debt to be sustainable.

The only financial support allocated to Eskom is the existing bailout package of R23bn a year for the next decade announced at the February budget. Some of this — R128bn in total — will be front-loaded over 2019 and 2020 — with an extra R10bn also being added to the 2021/2022 allocation.

Mboweni said in parliament on Wednesday afternoon that Eskom needed to “run their current plant and equipment better; achieve other operational efficiencies, including better cash management; and fast-track the separation of the utility into three parts.”

“Eskom is a business and must be run that way ... once I am convinced that the Eskom board and management has made an irrevocable commitment to implement government’s decisions and there is enough progress, we will negotiate the appropriate size of debt relief,” he said in his speech to parliament.

Eskom is listed in treasury’s fiscal risk statement as “the most serious risk to the fiscus”.

The R23bn of support to Eskom over the next decade will take SA’s debt to GDP ratio to 80.9% by 2027/2028.

Acting head of assets and liabilities in the treasury Tshepiso Moahloli said Eskom needed to show some commitment to reining in costs before seeking a further bailout.

“It would be irresponsible to do that upfront without Eskom reaching the operational efficiencies required. If we don’t deal with the problem, in no time we will be back where we started. We want Eskom to fundamentally change the way they do business. We want Eskom to think they are running a business not a charity organisation,” said Moahloli.

After the extensive process to discuss the restructuring of the power utility began in December, which has proposals from a presidential task team and from the Treasury and department of public enterprises, market expectations were high that Mboweni would make clear his choice on how to deal with the debt.

Nazmeera Moola, the co-head of fixed income at Investec, said: "We still need an Eskom plan. The medium-term budget policy statement had much less than expected.

“Unfortunately this is the trend. They don’t have an Eskom plan and they don’t have a budget plan.”

Intellidex analyst Peter Attard Montalto said that in light of the guidance from the government all year, the Eskom announcement was “a meaningful disappointment and bad news that no Eskom debt solution was discussed in even the broadest terms”.

Patonc@businesslive.co.za