Eskom getting R254 billion government bailout to help end load-shedding
Finance minister Enoch Godongwana proposed a debt-relief arrangement for South Africa’s embattled power utility of R254 billion during his 2023 Budget Speech on Wednesday, 22 February.
He said the debt relief would go a long way to managing Eskom’s unsustainable debt and ending load-shedding. However, he noted that the arrangement would be accompanied by strict conditions to protect public funds.
“We are proposing a total debt-relief arrangement for Eskom of R254 billion,” Godongwana said.
“This consists of two components. One is R184 billion. This represents Eskom’s full debt settlement requirement in three tranches over the medium term.”
“Second is a direct takeover of up to R70 billion of Eskom’s loan portfolio in 2025/26,” he added.
He explained that the debt relief structure means the power utility won’t need further loans during the relief period.
“Government will finance the arrangement through the R66 billion baseline provision announced in the 2019 Budget, and R118 billion in additional borrowings over the next three years,” Godongwana said.
The finance minister outlined several conditions that must be met for Eskom to retain the debt-relief arrangement.
“Honourable Members, the arrangement is accompanied by strict conditions to safeguard public funds,” Godongwana said.
The debt-relief conditions are as follows:
- Eskom must prioritise capital expenditure in transmission and distribution during the debt-relief period
- The power utility must focus on the maintenance of its existing generation fleet to improve electricity availability
- No new borrowing will be allowed from 1 April 2023 until the end of the debt-relief period, unless otherwise approved by Treasury
- Eskom may not implement remuneration adjustments that negatively affect its overall financial position and sustainability
- The debt relief must only be used to settle debt and interest payments
- Eskom must implement the recommendations outlined in an independent assessment of its operations, commissioned by the National Treasury
The R254 billion debt relief will make a big dent in Eskom’s R423 billion debt obligations.
“The goal is to strengthen the utility’s balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support security of electricity supply,” the National Treasury wrote in a document explaining the debt relief.
It also provided a breakdown of how the funds will be allocated.
Eskom will receive advances of R78 billion during the 2023/24 financial year, R66 billion in 2024/25, and R40 billion in 2025/26.
“These amounts represent Eskom’s full debt settlement requirement over the next three years,” the National Treasury said.
“They will be financed through the R66 billion medium-term expenditure framework (MTEF) baseline provision announced in the 2019 Budget, and R118 billion in additional borrowing over the MTEF period.”
The remaining funds will take the form of a direct takeover of up to R70 billion of Eskom’s loan portfolio.
Key aspects of the arrangement include:
- Funding will be advanced when the power utility’s debt settlements (interest and redemptions) are due, every year
- Advances will take the form of an interest-free subordinated loan to be settled in Eskom shares rather than cash
- The abovementioned strict conditions
- Eskom will commit to adhering to conditions set by government within three years, starting from the date of the first advance or 1 April 2023
- Eskom, the National Treasury, and the Department of Public Enterprises will engage in quarterly meetings to discuss progress on achieving these conditions
- The power utility’s failure to achieve or adhere to the outlined conditions will see the loan amount for the quarter paid back to the National Revenue Fund
- Government guarantees for Eskom debt will be reduced accordingly
Eskom to provide incentivised relief to indebted municipalities
Godongwana noted that payments owed to Eskom by municipalities as of 31 December 2022 totalled R56.3 billion and that this debt is rising.
“Undertaking a debt relief of this magnitude without addressing this risk would be counterproductive,” he said.
“We are working with Eskom to provide a solution to this problem, wherein Eskom will provide incentivised relief to municipalities whose debt is unaffordable.”
However, he said that these incentives would too come with strict conditions.
To avoid repeated debt build-up, the relief will include measures, such as installing prepaid meters, to prevent non-payment trends in certain municipalities.
“Eskom’s long-term financial viability depends on its customers paying their dues,” Godongwana added.
National Treasury said it would publish further details on these debt-relief incentives in a circular in March 2023, with implementation starting from 1 April.
The National Treasury’s Eskom Debt Relief Bill is embedded below.
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