Finance Minister Tito Mboweni .File picture: Nokuthula Mbatha African News Agency(ANA).
Finance Minister Tito Mboweni .File picture: Nokuthula Mbatha African News Agency(ANA).

Eskom's bailout comes at a significant cost to the fiscus and taxpayers

By Staff Reporter Time of article published Jul 23, 2019

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JOHANNESBURG - South African Finance Minister, Tito Mboweni, today presented the Special Appropriation Bill in the National Assembly which will provide additional financial support to the embattled national energy provider, Eskom. 

Mboweni said that he stated in his budget vote that Eskom presented the biggest risk to the fiscal framework because of its financial problems and negative impact on the economy.

Mboweni tabled a special appropriation bill in the National Assembly, allocating an additional R59bln to Eskom over two years.

Mboweni said that Eskom will be allocated R26 billion this financial year and R33 billion in the 2020/2021 financial year. This was in addition to the R23 billion lifeline extended to the cash-strapped power utility in the February budget.

"Although government has committed R23 bln to be allocated to Eskom over the next three years years in the current fiscal framework, Eskom's funding plan is dependent on their ability to raise additional finance from the market, which in turn requires them to be a going concern," Mboweni said.

"It is therefore important to note that the proposed financial support for 2019/2020 and 2020/2021 financial years addresses the going concern status and enables Eskom to honour its obligations."

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: Given the high risks of a systemic failure if Eskom were to collapse, government is urgently working on stabilizing the utility, while developing a broad strategy for its future. #Eskom

— National Treasury (@TreasuryRSA)

Mboweni said, "Eskom faces serious financial and operational challenges, which to a large extent were caused by the governance challenges that the entity previously experienced which resulted in a decline in investor confidence.  Eskom isn’t financially sustainable based on its current high levels of debt & its inability to generate sufficient revenue to meet its operational & capital obligations, which exposes the entity to high levels of liquidity and balance sheet risks."

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: Without major changes to Eskom’s business model and financial assistance being provided by Government, the company will be unable to meet its financial obligations through the 2019/2020 financial year. #Eskom

— National Treasury (@TreasuryRSA)

Mboweni stated that Eskom's model was outdated, "At a strategic level, we must thus face the reality that a large, vertically integrated energy company is an outdated model in a changing industry, both domestically and internationally."

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: The fiscal support we are announcing today will come at a significant cost to the fiscus and to South African tax-payers. #Eskom

— National Treasury (@TreasuryRSA)

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: In addition to the financial support to Eskom, there is also a preliminary indication that tax revenue could be significantly lower than budgeted for in the 2019 Budget. #Eskom

— National Treasury (@TreasuryRSA)

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: Although govt has committed R23bn to be allocated to #Eskom over the next 3yrs in current fiscal framework, Eskom’s funding plan is dependent on Eskom raising additional finance from the market, which in turn requires Eskom to be a going concern.

— National Treasury (@TreasuryRSA)

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: This Special Appropriation Bill request approval for additional financial support for Eskom as follows: a. Additional R26bn in 2019/20 financial year; and b. R33bn in the 2020/21 financial year. #Eskom

— National Treasury (@TreasuryRSA)

Mboweni said, "The future sustainability of Eskom will have to address the debt and the restructuring of Eskom."

%%%twitter https://twitter.com/tito_mboweni?ref_src=twsrc%5Etfw">@tito_mboweni: It is important that Government urgently implements the restructuring of Eskom into three entities - Generation, Transmission and Distribution. Separating Eskom will have numerous benefits. #Eskom

— National Treasury (@TreasuryRSA)

The country's finance boss went on to say that failure to strengthen Eskom’s balance sheet urgently, may likely have a negative systemic impact as Eskom is the largest non-bank corporate debt issuer in South Africa and any default will result in a crisis for Government & to some South African banks. 

Mboweni said, "Government remains committed to supporting and strengthening Eskom in order to ensure that the entity achieves business and financial sustainability and maintains adequate liquidity levels to continue operating...and ensure the security of electricity supply."

"The frequency of the power shortages has risen in recent years, and government needs to act boldly and decisively. We are therefore committed to a significant reform agenda for the entity." Mboweni concluded. 

BUSINESS REPORT ONLINE / 

African News Agency (ANA)

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