Ramaphosa signs another new law for South Africa – dealing with Eskom’s dire finances

 ·9 Apr 2024

President Cyril Ramaphosa has signed the Eskom Debt Relief Act, 2023 into law to help Eskom with its dire finances.

Although load shedding has improved in recent weeks (primarily due to lower demand), the state utility finances remain in dire straits.

Over the 2023 financial year, Eskom saw a record loss of R24 billion due to criminality skyrocketing and wealthier clients transitioning to alternative power sources, mainly solar. For 2024, the utility is projecting another R20-billion-plus loss.

Finance Minister Enoch Godongwana announced a R254 billion bailout for the utility during the 2023 budget.

This was primarily done to ease pressure on the company’s finances and free it to invest in transmission and distribution infrastructure.

Moreover, with R330 billion of Eskom’s debt being government-guaranteed, taking over the debt would reduce the nation’s fiscal risk.

The debt, however, still had stringent conditions to ensure that funds were spent correctly.

In the November 2023 Medium-Term Budget Policy Statement (MTBPS), Godongwana tabled the Eskom Debt Relief Amendment Bill, improving the enforceability of the conditions as part of the debt relief agreement.

The amendment—which President Cyril Rampahosa has now assented to—provides for Eskom to pay interest on amounts advanced as part of the debt relief loans.

It also provides for the reduction of the amount of debt relief available to SOE if it does not comply with the conditions set out by the National Treasury.

Potential problems

The Financial and Fiscal Commission (FFC), however, previously warned that forcing Eskom to pay interest on the loan may cause problems.

“The conversion of the Eskom debt relief programme to an interest-bearing loan means that Eskom will be obligated to pay interest in addition to repaying the principal amount,” said the FFC.

“The impact that this will have on the fiscus will depend on the interest rate specified in the loan agreement, as well as Eskom’s ability to service interest payments on the loan.

“Without significant structural reforms that address the root causes of its financial and operational challenges, it is unlikely that the entity will be able to serve these debt obligations.”

The Eskom Debt Relief Act, 2023 can be found below (mobile users can click here):

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