Unless it changes its business model and gets a cash injection from the government, Eskom will not meet its financial obligations in the current financial year, says National Treasury director-general Dondo Mogajane. Photo: Henk Kruger African News Agency (ANA)
JOHANNESBURG – The National Treasury on Wednesday issued a strong warning to the country’s legislators, charging that Eskom could go bust by March next year if its proposed funding model was not executed.

The Treasury fell short of giving the legislators an ultimatum to approve the special appropriation bill to provide R59 billion in additional financial support to Eskom over two years or face a fiscal meltdown.

Treasury director-general Dondo Mogajane said while the department was still finalising conditions for further cash injection into the cash-burning entity, it wanted to see Eskom dispose of its finance arm, which has a loan book of about R10bn. One of the main conditions for the bail-out would be for Eskom to service debt and interest and not to pay bonuses.

“Failure to manage short-term liquidity will result in Eskom defaulting on its debt repayments, and this will result in a possible call on its government-guaranteed debt,” Mogajane said.

“Failure to urgently strengthen Eskom’s balance sheet while the government is working on long-term sustainable solutions may likely have a negative systematic impact, as Eskom is the largest non-bank corporate debt issuer in South Africa and any default will result in a crisis to the government and some South African banks.”

Eskom established the Eskom Finance Company in the 1990s, primarily to enable its employees to have access to home loan finance, and it has about 16000 customers.

Mogajane further stressed that without changing its business model and getting a cash injection from the government, Eskom would not be in a position to meet its financial obligations in the current financial year.

The government guarantees more than R230bn of Eskom’s mammoth R440bn debt pile.

In July, Finance Minister Tito Mboweni said the state planned to give Eskom an additional R26bn this year and R33bn next year on top of the R23bn a year over the next three years it allocated to the power producer in the February budget.

The latest financial support for the power producer means the government would have supported it with R49bn in the 2019/20 financial year and R56bn in the 2020/21 period and R23bn in financial year 2022, with at least another R100bn in the pipeline in the coming years.

The financial constraints were laid bare last month when Eskom reported a record R20.7bn loss for the 2018/19 financial year from a R2.3bn loss in the previous year. The increase was largely attributed to a R14.3bn increase in the cost of primary energy and runaway municipal debt.

North-West University Business School economist Raymond Parsons said it was essential for Eskom to get a cash injection from the government now to tide it over its current debt obligations and to help keep the lights on.

“But this needs to be coupled with an irreversible commitment to implement restructuring or unbundling of Eskom to stabilise it in the longer term,” Parsons said.

“Bail-outs of this magnitude cannot be repeated, and must be synchronised with long-term structural solutions.

"The additional bailout for Eskom will inevitably put an extra burden on the medium-term budget policy statement in October.”

In a groundbreaking proposal to revive the ailing economy, the Treasury on Tuesday took the public into its confidence on its plans to restructure Eskom. Chief among the plans is the disposal of the utility’s ageing coal-fired stations to the tune of R450bn.