Eskom is thrown another lifeline, but on condition that the power utility improves its accountability and addresses inefficiencies, while it undergoes restructuring into three separate entities. Photo: Bhekikhaya Mabaso/African News Agency (ANA)
Eskom is thrown another lifeline, but on condition that the power utility improves its accountability and addresses inefficiencies, while it undergoes restructuring into three separate entities. Photo: Bhekikhaya Mabaso/African News Agency (ANA)

R112bn and R16.4bn for Eskom, SAA in R128.4bn bailouts

By Dineo Faku Time of article published Feb 27, 2020

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JOHANNESBURG – The National Treasury on Wednesday said that it had agreed to large increases for state-owned power utility Eskom and SAA, and that it would transfer R112 billion to Eskom to enable the utility to meet its short-term financial obligations.

The Treasury said in the past 12 years, R162bn had been allocated to financially distressed state-owned companies, with Eskom accounting for 82 percent. It said that the fiscal support for Eskom, which was outlined in the 2019 Medium-Term Budget Policy Statement, would remain unchanged. 

“These are the first steps in the necessary restructuring of South Africa’s electricity sector for the 21st century,” the Treasury said.

Eskom’s ongoing problems have disrupted the supply of electricity to households and businesses, and severely impacted the economy. 

The Treasury said the government had set aside significant resources for Eskom, and announced that the focus would be on operational problems and the restructuring of the utility into three separate units – marking the beginning of a transition to a competitive, transparent, and financially viable electricity sector.

Industry has estimated that the power cuts caused the economy a 0.1 percent loss in the fourth quarter of 2019. 

The Treasury said that the government had provided significant support to Eskom since 2008, including R105bn in 2019/20 and 2020/21 on condition that the power utility improved its accountability, and addressed inefficiencies. “The conditions include reducing primary energy costs; containing other costs; and making progress on restructuring,” the Treasury said.

It said Eskom provided regular updates on these conditions, and that the government was reviewing its cash flows on a daily basis.

The power utility reported a net profit of R1.3bn on September 30, 2019, but it was not generating enough cash to cover its debt and finance costs.  Finance Minister Tito Mboweni said that the “sword of Damocles” had now fallen on SAA.

Mboweni said the government had set aside R16.4bn for SAA to repay its guaranteed debt, and interest costs over the medium term. 

SAA, which was placed under business rescue last year, had incurred net losses of more than R32bn since the 2008/9 financial year.

Mboweni said that costs associated with the national airline’s restructuring would be prioritised within the Budget. The business rescue practitioners were expected to publish their plan within a matter of weeks, the Treasury said in the document. “It is the very sincere hope of many that this intervention will lead to a sustainable airline that is not a burden to the fiscus,” Mboweni said.

BUSINESS REPORT

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