Key topics:
- Municipal debt to Eskom has reached R109 billion, worsening finances.
- Eskom could need R50 billion in relief if municipalities fail to pay.
- Another bailout may lead to complacency without performance improvements.
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Nishan Maharaj, head of fixed interest at Coronation, says Eskom’s ballooning municipal debt could force National Treasury to announce another bailout for the state-owned power utility.
Municipal debt has grown to R109 billion, and Maharaj told the Sunday Times that Eskom is unlikely to fill the financial hole resulting from municipal non-payment.
If municipalities cannot pay back the debt, government could be forced to provide another relief package for the power utility.
“This thing can’t sit on the balance sheet forever, it has to be corrected,” he said.
“And if it’s not corrected via collection of the tariff then inevitably someone has to fill the gap, and that someone will have to be the government.”
He estimated that Eskom would require relief in the region of R50 billion. However, Maharaj warned that another bailout could lead to complacency at Eskom regarding the need to improve its performance.
His prediction comes just two years after government announced an interest-free debt relief arrangement of R254 billion for the power utility.
Finance Minister Enoch Godongwana announced the bailout during his Budget Speech in February 2023.
Read more: Eskom’s tariffs set to surge
“This consists of two components. One is R184 billion. This represents Eskom’s full debt settlement requirement in three tranches over the medium term,” he said.
“Second is a direct takeover of up to R70 billion of Eskom’s loan portfolio in 2025/26.”
However, Godongwana noted that the arrangement would be accompanied by strict conditions to protect public funds, as follows:
- Eskom must prioritise capital expenditure in transmission and distribution during the debt-relief period.
- It must focus on maintaining its existing generation fleet to improve available generating capacity.
- Eskom cannot borrow any further funds from 1 April 2023 until the end of the debt-relief period unless otherwise approved by National Treasury.
- Eskom may not implement remuneration adjustments that negatively affect its overall financial position and sustainability.
- The bailout may only be used to settle debt and interest payments.
- Eskom must implement the recommendations outlined in a Treasury-commissioned independent assessment of its operations.
“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 its supporting documents.
It also revealed that Eskom would receive funding of R78 billion in 2023/24, R66 billion in 2024/25, and R40 billion in 20205/26, with the remaining relief being a direct takeover of up to R70 billion of Eskom’s loan portfolio.
Godongwana, tabling the Eskom Debt Relief Amendment Bill, announced a major change to the debt-relief package in November 2023: It would no longer be interest-free.
“The Eskom Debt Relief Amendment Bill which we are tabling today seeks to enhance the enforceability of the conditions agreed under the debt relief agreement,” the Minister said.
The Bill not only made the subordinate loans interest-bearing but also enabled the Minister to adjust the debt-relief amounts under certain conditions.
“[It] provides for the reduction of the amount of debt relief available to Eskom, in the event that the entity does not comply with the National Treasury conditions,” said Godongwana.
“These principles and strict conditionalities, greatly enhanced by the Amendment, are a key part of how we will deal with Eskom and all other state-owned entities, to avoid a repeat of the mistakes of previous bailouts.”
Read also:
- Eskom’s turnaround at risk from $5 billion municipal debt
- Eskom forecasts first profit since 2017 despite mounting losses and municipal debt
- Eskom’s tariff overhaul risks repeat of Telkom’s costly mistakes
This article was first published by MyBroadband and is republished with permission
