Budget 2023: Eskom’s R500bn taxpayer-funded turnaround – at last, a plan that might work.

For decades, successive ANC governments have fiddled while Eskom burned. Mbeki ignored warnings about the ageing power generation fleet. Spurred on by the direct and its cadre’s plunder potential, Luthuli House eventually commissioned the disastrous Medupi and Kusile projects. And in recent years, while power outages grew, government has simply kicked the explosive Eskom can down the road. No longer. With an election looming and South Africans angry that electricity is available for only half the day, the Ramaphosa Administration has finally grasped the nettle after R263bn in taxpayer-funded bailouts. The ANC has finally abandoned its socialist fantasy of a “Developmental State” which controls the electricity supply. The belated appreciation of economic reality comes at a substantial additional cost – for the next three years, SA’s taxpayers will kick in another R254bn by assuming responsibility for all of the interest and capital repayment on Eskom’s debt. Overall, the ANC’s insistence that its monopoly alone should supply SA’s electricity has cost the country north of R500bn. For context, that’s around half of all tax that citizens, and companies inject annually into National Treasury. – Alec Hogg

Eskom Bailout and Plan – the details:

Since 2008/09, SA’s National Treasury government has given Eskom R263.4bn in bailouts, but this has failed to stem the collapse of the utility’s balance sheet.  

Eskom’s debt is now R423bn, of which the SA State guarantees R350bn, a substantial contingent liability for the nation. The electricity utility is at risk of defaulting on its debt, which would hammer SA’s credit rating and raise borrowing costs for the whole country. 

Government is proposing debt relief of R254bn for Eskom over the next three years (R168bn in capital and R86bn in interest). This will strengthen the utility’s balance sheet and give it breathing space to effect the restructure, which is central to the plan to secure the future supply of electricity. 

Key features of the Eskom Plan:

  • Government will provide Eskom with advances of R78bn in the year to end February 2024, R66bn in the following year and R40bn to Feb 2026. In essence, it means central government will cover capital and interest payments due on Eskom’s debt over the next three years.
  • These amounts will be financed through the R66bn baseline provision in October’s MTBPS and R118bn in additional borrowing over the next three years. 
  • In 2025/26, government will directly take over up to R70bn of Eskom’s loan portfolio.

The success of this arrangement rests on the implementation of key reforms that address the inadequacies of the transmission network and the performance of existing power stations.

‘Extensive’ private-sector participation will be required in the development of the electricity transmission network.

National Treasury has appointed an international consortium with extensive experience in the operations of coal-fired power stations to review all plants in Eskom’s coal fleet and advise on operational improvements by June this year. As part of the agreement, Eskom is required to implement the recommendations.

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