Cabinet has approved a package to close the funding gap at Eskom, the National Treasury said on Sunday.<\/p>\n
The package, approved at a special Cabinet meeting in Cape Town on Thursday, would guarantee energy security and support gross domestic product growth, spokeswoman Phumza Macanda said in a statement.<\/p>\n
\u201cThis package was based on recommendations from an Inter-Ministerial Committee which reviewed an extensive set of options available to ensure energy security.\u201d<\/p>\n
Eskom faced significant challenges which threatened its sustainability that included a funding gap.<\/p>\n
Eskom would not generate enough revenue to cover electricity supply costs, which was the cause of the funding gap.<\/p>\n
\u201cFurther, Eskom has been incurring additional costs to keep the lights on by running the more expensive power plants (open cycle gas turbines) excessively,\u201d Macanda said.<\/p>\n
This was due to a drop in performance of some of its coal plants and delays in the build program.<\/p>\n
Government would support Eskom\u2019s application to the National Energy Regulator of SA (Nersa) for tariff adjustments in line with the regulatory process, Macanda said.<\/p>\n
Tariff adjustments remained the most important way of providing Eskom with the revenue it needed to complete the building of power stations, and repay debt.<\/p>\n
\u201cNersa will still apply its regulatory oversight and prudency tests to ensure that costs across the industry have been efficiently incurred,\u201d she said.<\/p>\n
After taking into account the challenges facing electricity supply, potential socio-economic impact, and maintaining a sound fiscal framework, Cabinet decided on the following package:<\/p>\n
The debt raising would be supported by the \u201csubstantial guarantee facility\u201d from government.<\/p>\n
Government would assist municipalities to address the current free allocation weaknesses and implement a programme to improve municipal electricity efficiency.<\/p>\n
As a result, Eskom had to improve maintenance of existing power stations, limit cost overruns in the new build programme, and improve procurement outcomes and the management of working capital.<\/p>\n
\u201cThe work of the Inter-Ministerial Committee is on-going and will include wide consultation to ensure that the best possible solutions are considered to ensure energy security going forward,\u201d Macanda said.<\/p>\n
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