Finance minister Enoch Gondongwana has alluded at the government taking on a portion of Eskom’s R400 billion debt.
At an inter-ministerial energy briefing on Monday (1 August), Gondongwana said that the government’s plans to deal with Eskom’s R400 billion debt would be revealed in the Medium Term Budget Policy Statement (MTBPS) in October.
Gondongwana said Eskom’s debt is unsustainable, and the National Treasury is working to finalise a sustainable solution.
“We are in an environment where, from a financial perspective, Eskom’s debt is unsustainable. Being unsustainable, we’ve got to find a way to step in as the fiscus,” he said, adding that the debt puts the government at risk, and so, the government must step in.
What has not yet been settled is the extent to which the government will step in.
Eskom and Treasury officials are currently developing scenarios that will be tabled before Cabinet, Gondongwana said.
The minister said there is no need to discuss a drawdown to support Eskom’s maintenance plan, as the power utility is yet to approach National Treasury in this regard.
He added that the tariff debate between Eskom and the National Energy Regulator of South Africa (Nersa) also needs to be finalised “expeditiously” to help support a rapid solution to the country’s energy challenges.
Duncan Pieterse, head of assets and liability management at the National Treasury, said in an interview last week (27 July) that it makes absolute sense to shift a portion of Eskom’s unsustainable debt onto the government balance sheet.
Nedbank’s chief executive officer Mike Brown also agreed that South Africa’s plan to take over part of Eskom’s R396 billion debt is in the “right direction” because the power utility is “too big to fail.”
Earlier this year, the International Monetary Fund (IMF) also chimed in on Eskom’s debt problem, stating that any solution must be preceded and accompanied by concrete and credible actions to downsize the company’s balance sheet and restore its commercial viability.
These include efforts to cut costs and collect arrears and a more predictable tariff-setting mechanism, it said.
“Otherwise, Eskom will continue relying on government support and remain a constraint to economic growth and a threat to the sustainability of the public finances,” said the IMF.
The government is planning to cut red tape and reduce regulatory requirements for renewable projects in the country, according to an array of ministers making up the newly formed Energy Crisis Committee.
Minister of Forestry and Fisheries and Environmental Affairs Barbara Creecy said that the government would reduce the regulatory requirements for solar projects in low and medium environmental sensitivity.
This will allow Eskom to expand power lines and substations without environmental authorisation in these areas. She said this is part of efforts to speed up its response to the country’s energy crisis.
“We have already identified five electricity transmission corridors, and when this particular infrastructure is located within those transmissions corridors, and we have worked with Eskom on identifying those corridors that these provisions about not needing an EIA (Environmental Impact Assessment) would kick in if it’s areas of low and medium sensitivity,” said Creecy.
The committee also included ministers from the presidency, mineral resources and energy, public enterprises, finance, and trade and industries.
The ministers laid out a plan to procure as much as 1,950MW of power in the next three months, including sourcing 1,000MW from independent power producers, 600MW from cutting red tape, up to 200MW from imports and another 150MW from gas.
While the additional capacity will help alleviate some of the stresses on Eskom, the power utility’s generation shortfall is at worst 6,000MW, leaving a 4,000MW gap that can only be resolved through long-term interventions.