Cash flow to support Eskom will be in the form of loans, not equity
JOHANNESBURG – Finance Minister Tito Mboweni on Wednesday warned that the government would play hard ball with power utility Eskom, as its ballooning debt was a significant contributor to the country's widening deficit.
Mboweni said that lower revenue, additional financial support for Eskom and higher debt-service costs were expected to widen the main budget deficit by an average of 2.2 percentage points in the next two years.
He said new cash flow support would no longer be equity, but in the form of loans.
“Once I am convinced that the Eskom board and management have made an irrevocable commitment to implement the government's decisions, and there is enough progress, we will negotiate the appropriate size of debt relief. Eskom is a business and should be run that way,” Mboweni said.
Speaking to journalists on the sidelines of the Medium-Term Budget Policy Statement (MTBPS), National Treasury director-general Dondo Mogajane said the government had upped the game on what was expected of all state-owned enterprises (SOEs) that continued to receive bailouts.
Mogajane said the government would no longer issue bailouts to SOEs without strict conditions.
“We get business units coming to us to get money without addressing fundamental questions,” he said. “That has got to come to an end.”
Mogajane said the special paper released by Public Enterprises Minister Pravin Gordhan on Tuesday would help Eskom deal with debt. Gordhan’s plan aims to reform Eskom by overhauling its business model.
“The bottom line is that our approach to Eskom has to change. Eskom must fix the business, and we will stand behind Eskom,” said Mogajane.
Eskom relies on government support, borrowing from existing facilities and securing new debt to maintain a positive cash balance.
“Eskom remains the most serious risk to the fiscus, as it has a significantly high debt burden and has made limited progress with the necessary reforms announced in February,” the Treasury said.
Eskom had used R289 billion of its R350bn government guarantee facility by the end of August, with another R43bn committed to specific funding instruments yet to be used. In the current financial year, the government provisionally allocated appropriations totalling R49bn for Eskom.
Last week, the Cabinet approved the appropriation. An expected R112bn was provided over the medium-term expenditure framework period. Additional support may be required, depending on progress in cost savings and institutional reform.
The Treasury said provision for financial support for Eskom in the current year and over the medium term amounted to R161bn. “The total cost of Eskom’s annual debt and interest payments averages R85bn over the next three years,” it said.
“Ongoing problems with the utility’s operations continue to disrupt the supply of electricity to households and businesses. The government has set aside significant resources for Eskom. With the immediate financial restraints lifted, the focus must be on operational problems and restructuring Eskom into three separate entities.
“Doing so will mark the beginning of a transition to a competitive, transparent and financially viable electricity sector.”