Government to take over significant portion of Eskom’s R400 billion debt

 ·26 Oct 2022

Finance minister Enoch Godongwana says that the government will take over a significant portion of Eskom’s R400 billion debt.

Delivering his Medium-Term Budget Policy Statement (MTBPS) in Cape Town on Wednesday (26 October), the minister said that for at least a decade, the government has spent billions of rands supporting Eskom, the broken power utility, with limited improvements in the reliability of the electricity supply or the financial health of the company.

“To ensure Eskom’s long-term financial viability, the government will take over a significant portion of the utility’s R400 billion debt,” he said.

“While the selection of the relevant debt instruments and the method of effecting the relief is still to be determined, the quantum is expected to be between one-third and two-thirds of Eskom’s current debt.

“The debt takeover, once finalised, together with other reforms, will ensure that Eskom is financially sustainable,” the minister said.

The programme, according to Godongwana, will allow Eskom to focus on plant performance and capital investment and ensure that it no longer relies on government bailouts.

“Importantly, the programme will include strict conditions required of Eskom and other stakeholders before and during the debt transfer. These conditions will address Eskom’s structural challenges by managing its costs, addressing municipal and household arrears due to the utility, and providing greater clarity and transparency in tariff pricing,” said Godongwana.

In addition, the conditions will be informed by a Treasury-led independent review of Eskom’s operations, in particular the performance of its generation fleet, the finance lead added.

Further details of the programme, he said, will be finalised following consultations with all relevant stakeholders and lenders and will be announced in the 2023 Budget.

Economists polled by Bloomberg had forecast that the government would absorb half of Eskom’s R400 billion burden.

“While the transfer of debt from Eskom to the sovereign would result in a further deterioration in fiscal metrics, it could well be the only choice available to shore up the power utility’s finances and the country’s economic prospects,” PwC said in a research note.

Gina Schoeman, an economist at Citibank South Africa and Andrea Masia, a senior economist at RMB Morgan Stanley, projected the transfer would happen in the fiscal year through March 2024. Goldman Sachs Group economists said they expect the operation will have “a neutral effect on total public and publicly guaranteed debt.”

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