Big bailout for Eskom’s R400-billion debt

The South African government plans to take over one-third to two-thirds of Eskom’s debt to allow the utility to prioritise improving its plant performance and reducing load-shedding.

This announcement formed part of finance minister Enoch Godongwana’s 2022 Medium Term Budget Policy (MTBP) speech, delivered to parliament on Wednesday, 26 October 2022.

Godongwana said the plan to take over a significant portion of the utility’s debt sought to ensure Eskom’s long-term financial viability.

The minister said that repeated government funding injections, commonly known as “bailouts”, had not helped improve Eskom’s performance or financials.

“For at least a decade, we have spent billions of rands supporting Eskom, with limited improvements in the reliability of the electricity supply or the financial health of the company.”

Godongwana said the selection of the relevant debt instruments and the method of effecting the relief was still to be determined.

“The programme will allow Eskom to focus on plant performance and capital investment and ensure that it no longer relies on government bailouts.”

Godongwana stressed the takeover programme would include strict conditions that Eskom and other stakeholders would have to meet before and during the debt transfer.

“These conditions will address Eskom’s structural challenges by managing its costs, addressing municipal and household arrears due to the utility, and providing greater clarity and transparency in tariff pricing,” Godongwana said.

The minister added the conditions would be informed by a Treasury-led independent review of Eskom’s operations, with a particular focus on the performance of its generation fleet.

“Further details of the programme will be finalised following consultations with all relevant stakeholders and lenders and will be announced in the 2023 Budget,” Godongwana said.

Eskom’s debt book stood at R396 billion by the end of March 2021, a reduction of over R80 billion from the year before.

That was primarily due to a government bailout, helped by a stronger rand, which reduced the value of Eskom’s dollar-denominated debt.

Should the debt amount have remained roughly the same, the government is anticipated to take over between R100 billion and R300 billion.

However, it is unclear how Eskom’s debt has changed in the year and a half that has passed since then.

The utility has delayed its financial results for the 2021/2022 financial year until the end of November 2022 due to accounting restatements.

Some analysts expect its debt has grown substantially due to its increased reliance on open-cycle gas turbine emergency generation during South Africa’s two worst years of load-shedding.

That has required Eskom to burn billions of rands more in diesel than it budgeted for.

The utility recently also acknowledged it was likely to overshoot its budget on diesel expenditure for the 2022/2023 financial year and could require a bailout from the government.

Between April 2022 and the start of September 2022, it had already spent R7.7 billion on diesel, compared to the R6.4 billion it spent in the entire 2021 financial year.

Combined with a stronger dollar and weaker rand, municipal debt to Eskom increasing, and employee wage hikes above what the utility had planned, a potential increase in Eskom’s debt levels seems likely.

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