Treasury considering Eskom debt solution as support continues
Fiscal intervention needed, but the details of a plan are still being discussed, says Godongwana
The Treasury did not announce any solution to Eskom’s unsustainable debt burden in the 2022 budget, but finance minister Enoch Godongwana said that a solution for the state-owned power utility is under discussion.
The minister made it clear at a media briefing that the Treasury will reduce demands on SA’s limited public resources from state-owned companies saying that entities such as Eskom must develop and implement sustainable turnaround plans they want more state support.
“We are aware that Eskom’s debt situation remains a concern for its creditors and our investors alike. Government continues to support Eskom to remain financially sustainable during its transition,” Godongwana said.
In early February, the IMF said after meetings with SA officials that the government was considering taking over part or all of Eskom’s debt to restructure the cash-strapped power utility’s loan obligations.
To date, the Treasury has provided Eskom with R136bn to reduce its R392bn debt, with R88bn more in payments to be transferred until 2025/2026. Godongwana said the government realises that Eskom is faced with much debt that remains a challenge to service without assistance.
“Treasury is working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders. Any solution will be contingent on continued progress to reform SA’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring.”
Finance minister Enoch Godongwana delivered his maiden budget speech, stressing that economic growth will be limited and that state-owned entities will have to get their houses in order if they want more funding from government. #Budget2022 #EnochGodongwana Subscribe to TimesLIVE Video here: https://www.youtube.com/user/TimesLive Comment Moderation Policy: https://www.timeslive.co.za/comments/
During the media briefing he said that “some fiscal intervention” will be necessary to deal with Eskom’s precarious financial situation since it will “never be able to repay” outstanding debt without some further support from the government. “We are not saying no [to providing Eskom with a debt solution], but we must first have a conversation about how we get to that solution.”
Any further support from the fiscus will come with certain requirements, and Eskom will have to demonstrate that it is “serious about cost containment and proper management”.
The utility will have to take further steps towards cost containment, conclude sales of assets and implement operational improvements to enhance the reliability of electricity supply. “The outcome of this work, which is legally and technically complex, will be announced within the next financial year,” said Godongwana.
He expressed concern at the utility’s lack of progress in improving service delivery.
“Eskom’s performance is not different today from what it was in 2008. That cannot be right. We have been focusing on fixing Eskom instead of focusing on fixing electricity supply,” he said.
The Treasury said in the Budget Review that the downward trend in Eskom’s generation capacity reflects the unpredictable performance of the utility’s coal-fired fleet, defects in new power stations and inadequate maintenance. The energy availability factor from coal-fired power stations has consistently declined, from 78.7% in 2017 to 61.8% in 2021 and SA experienced the worst yet year of load-shedding in 2021 with the extent of power cuts increasing from 1,269GWh during 2020 to 1,772GWh in 2021 .
Instead of tabling a new debt solution for Eskom in the 2022 budget, the Treasury said it will allow Eskom to use the guarantee to secure more funds to access additional guaranteed debt of R42bn in 2021/2022 and R25bn in 2022/2023, which would still be within the limits of its R350bn government guarantee facility. By March 2021 Eskom had used R281.6bn of the facility, but after redeeming some of its maturing debt there is now some space within the limits of the facility.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.