The government will be taking over R254 billion of Eskom’s colossal R423bn debt in a bid to address the power utility’s persistently weak financial position and enable it to conduct the necessary investment and maintenance.
Finance Minister Enoch Godongwana made this announcement during his Budget Speech while tabling the 2023 estimates in Parliament today, making good on his promise for the state to shoulder at least two-thirds of the utility’s debt burden.
Godongwana said the debt relief the government was proposing had very strict conditions and would be about R168bn in capital, and R86bn in interest over the next three years.
Godongwana said the goal was to strengthen the utility’s balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support the security of the electricity supply.
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“We are proposing a total debt-relief arrangement for Eskom of R254bn. This consists of two components: one is R184bn. This represents Eskom’s full debt settlement requirement in three tranches over the medium term,” Godongwana said.
“Second is a direct take-over of up to R70bn of Eskom’s loan portfolio in 2025/26. Because of the structure of the debt relief, Eskom will not need further borrowing during the relief period.
“Government will finance the arrangement through the R66 billion baseline provision announced in the 2019 Budget, and R118 billion in additional borrowings over the next three years,” he said.
This unprecedented large-scale programme will relieve Eskom of more than half of its debt burden and it is the first time that the government is making such a direct intervention at the troubled state-owned enterprise (SOE).
It will also be cheered by the market which had grown wary of lending money to Eskom due to its financial challenges, operational shortcomings, and leadership instability.
The government views Eskom’s operational failures as intertwined with its untenable financial position, as R263.4bn in bailouts provided to the utility since 2008/9 have failed to stem the collapse of Eskom’s balance sheet and operations.
Eskom’s ongoing challenges with the security of energy supply have seen rotational load shedding hours increasing from 1 165 in 2021 to 3 782 in 2022, weighing on economic growth now revised downwards to 0.9% in 2023.
Godongwana praised the fiscal consolidation strategy proposed in the 2020 Medium-Term Budget Policy Statement (MTBPS) as having enabled the government to stabilise public finances in the context of several shocks, and a highly uncertain economic outlook.
He said the strategy had positioned public finances to absorb a portion of Eskom debt, maintain support for the economy and the most vulnerable, and make budget additions to fight crime and corruption.
However, this debt-relief programme does not come without risks to the fiscus as the government already guarantees R350bn of Eskom’s debt, which is at risk of default – a contingent liability that raises South Africa’s risk premium and borrowing costs.
Godongwana said this arrangement will require a significant increase in public debt.
As a result, the gross loan debt is now projected to stabilise three years later and at a higher level than projected in October, rising from R4.73 trillion in 2022/23 or 71.1% of gross domestic product (GDP) to R5.84 trillion or 73.6% of GDP in 2025/26, before declining for the rest of the decade.
BUSINESS REPORT