Eskom’s R230-billion bailout might not be enough to save it

The government is expected to grant Eskom a R230-billion bailout in an attempt to save the floundering power utility, but this might not be enough to fix the problem.

Speaking to the Sunday Times, Econometrix chief economist Azar Jammine said that the bailout of R230 billion for 10 years (or R23 billion per year) would be insufficient and force Eskom to seek further loans and accrue more debt.

“We are really talking about R50 billion to R60 billion needed every year given current tariffs that have been awarded by Nersa,” Jammine said. “They are way too low to put Eskom on a cost-reflective pricing scale.”

He added that public debt will have to rise in response, which could result in a credit ratings downgrade further down the line.

The government is currently working on a special appropriation bill which will enable the allocation of more funds to Eskom, and National Treasury has not stated whether the power utility will be required to pay back the amount.

Nedbank CEO Mike Brown recently proposed a possible solution to save Eskom which comprised first giving the state-owned power utility cash and then considering a debt-to-equity swap later.

“For all practical purposes, we don’t have any easy or good options available at this stage,” Brown said.

Growing problems

As Eskom awaits a bailout while struggling to pay interest on its debts and employee salaries, its list of problems continues to grow.

Eskom CEO Phakamani Hadebe recently announced his resignation from the power utility, citing the stress of the job as a major factor in his decision. Hadebe will step down at the end of this month.

The power utility plans to appoint an acting CEO temporarily, as Eskom’s board reportedly did not have enough time to advertise and process a permanent appointment.

Looking further ahead, Eskom will be greatly affected by the new carbon tax bill expected to kick in from 2023.

The implementation of this bill would result in Eskom being taxed billions every year due to the major contribution it makes to the country’s CO2 emissions.

Eskom’s array of existing problems and the impending troubles ahead mean it is sorely in need of a government bailout, but a payment of this magnitude might directly affect consumers in the form of tax hikes.

A report last month found that the government would need to issue additional state bonds, take out more loans, and possibly increase taxes to cover the costs of a major Eskom bailout.

Now read: Eskom to stop replacing substations, transformers in areas where people don’t pay

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Eskom’s R230-billion bailout might not be enough to save it