“Tough love” for bailouts of state-owned companies — but Eskom too big to fail
Finance minister Enoch Godongwana has announced that the future of state-owned companies (SOCs) in South Africa will be determined by the value they create and whether they can be run sustainably without bailouts from the fiscus.
During his 2022 budget speech on Wednesday, Godongwana explained that SOCs would need to develop their own plans to reduce their reliance on South Africa’s limited public resources.
“For this reason, SOCs need to develop and implement [their own] sustainable turnaround plans,” Godongwana said.
“To reduce their continuing demands on South Africa’s public resources, the National Treasury will outline the criteria for government funding of state‐owned companies, during the upcoming financial year.”
“This…is what we mean by tough love,” the minister added.
However, the finance minister reiterated that one SOC — Eskom — would receive continued support from the government, particularly when it came to the utility’s massive debt problem.
“We acknowledge, however, that Eskom is faced with a large amount of debt that remains a challenge to service without assistance,” Godongwana stated.
“To date, Eskom has been provided with R136 billion to pay off its debt with a further R88 billion until 2025/26,” Godongwana said.
Sustainable way forward
He explained that the National Treasury is working on a sustainable way to deal with the power utility’s debt in a way that is fair to its stakeholders.
“Any solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan and its restructuring,” Godongwana said.
However, this is not a one-sided deal. Godongwana outlined the National Treasury’s expectations of the power utility.
“We expect Eskom to take further steps towards cost containment, conclude the sale of assets and implement operational improvements to enhance the reliability of electricity supply,” he said.
“The outcome of this work, which is legally and technically complex, will be announced within the next financial year.”
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