Treasury clarifies Eskom debt plan

 ·9 May 2023

The National Treasury has released an explanatory note on the Eskom Debt Relief strategy outlining how the government intends to improve the books of the power utility.

On 22 February this year, finance minister Enoch Godongwana introduced the Eskom Debt Relief Bill in Parliament, marking a decisive step by the government to once and for all tackle the financial dire straits of Eskom.

According to the Treasury, the bill forms one of the many initiatives undertaken by the government to help Eskom become a profitable, transparent, and efficient entity.

“Overall, the Eskom Debt Relief Bill is a significant step towards restoring Eskom’s financial stability and ensuring its long-term sustainability. This arrangement, subject to strict conditions, will relieve extreme pressure on the utility’s balance sheet, enabling it to conduct necessary investment and maintenance,” said the Treasury.

Two of the hallmark decisions under the Eskom debt relief initiative are the agreement for government to fork out R254 billion in relief over the next three years as well as writing off municipalities’ Eskom debt.

Conditional loans

In its latest explanatory note, the Treasury said that regarding the medium-term debt relief strategy, the funds will only find their way to the company once the bill is enacted into law.

Relief will be granted in the form of interest-free loans, meaning that Eskom will not be required to pay interest on the borrowed principal amount.

The lender provides the borrower with money without charging any additional cost for the loan. Some interest-free loans may have a repayment period, while others may be structured as a one-time payment, said the Treasury.

If Eskom meets the conditions, the loan can be repaid by issuing shares rather than making cash payments. However, failure to meet the specified conditions will result in repayment at market rates to the National Revenue Fund, said the authority.

The debt relief is also subject to stringent conditions, as proposed by Godongwana. Treasury said that these conditions would take effect when the bill is enacted, and the minister would be able to thereafter review and modify conditions at any time.

Municipal debt

The Treasury said that when it comes to the millions in outstanding municipal electricity debt, the relevant municipalities have been provided terms and conditions they must meet for their debt to be written off by Eskom.

“Under this initiative, municipalities that meet certain criteria may have a portion of their outstanding debt to Eskom written off. The debt write-off by Eskom will have no additional financial implications for the sovereign.”

“This is part of the government’s broader efforts to address the financial challenges faced by municipalities,” said the Treasury.

Treasury has previously made it clear that this is a separate support plan for municipalities.

After compliance with strict conditions, the Treasury will instruct the power utility to write off a third of the municipality’s arrears.

Taxpayers to bail out municipalities that can’t pay Eskom

Further details

The explanatory note further stressed that the executive authority for Eskom will remain the minister of Public Enterprises despite the finance minister stepping in regarding debt relief arrangements.

Adherence to the set conditions will be assessed every quarter in meetings held between Eskom, the National Treasury and the Department of Public Enterprises.

If Eskom is found to be non-compliant with the conditions, the loan settlement will be delayed until the next quarterly meeting, where it could be reassessed.

If non-compliant again, the result of the balance will be carried to 31 March 2026, whereafter the loan will be converted into a liability payable in cash and at market terms.

Concern has been raised over the ability of the company to fund capital expenditure requirements for the completion of power stations Kusile and Medupi, as no new borrowing is permitted during the three-year debt relief window.

In response, the Treasury said that funding for those projects would be from the company’s internally generated funds. Any deviation in this process could only be executed through written permission by the minister of finance.

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