Exhibiting some impatience with Eskom, finance minister Enoch Godongwana wants to see turnaround plans, actions and the sale of assets for the utility to get out of its crisis. But this will not be easy, or perhaps even feasible, say commentators.
The extent to which SA’s power crisis and Eskom’s R400bn mountain of debt are suppressing GDP and weighing on the fragile fiscus is a major concern for the National Treasury. In his budget speech, Godongwana said Eskom had been given R136bn to pay off its debt and a further R88bn until 2025/2026.
The Treasury allocated R21.9bn to Eskom in the current year in equity support after providing R31.7bn in 2021/2022. It forecasts a R21bn and R22bn allocation in the next two years to facilitate Eskom’s restructuring, which will see it split its generation and transmission assets.
By March 31 2021, Eskom had used R281.6bn of its R350bn government guarantee facility, with another R7bn committed. It has a special dispensation to access additional guaranteed debt of R42bn in 2021/2022 and R25bn in 2022/2023.
In 13 years, Eskom has received R290bn and its performance is no better, said Godongwana. He said the government will spend more time fixing Eskom than fixing electrical supply to the economy, and that electricity needed to be brought into the economy, no matter who brings it.
He said the government was dealing with Eskom’s debt issue in detail because the utility will never be able to pay its debt without fiscal intervention. The Treasury wants to see some action from Eskom’s side, including turnaround plans, efficiencies and the sale of assets.
The separation of Eskom’s transmission and generation business, which is expected to precede the sale of one or both assets, has not gone smoothly. Though Eskom registered its transmission unit as a subsidiary with the Companies & Intellectual Property Commission, it missed the December 31 2021 deadline to complete its legal separation, partly because lenders haven’t approved the restructuring.
Energy analyst Ted Blom says the transmission business is Eskom’s most sellable asset at this stage, but that the sale of assets will be hampered by Eskom’s debt because creditors are not going to release collateral, be it power stations or the transmissions business.
The budget indicates that the energy crisis will be alleviated somewhat by the renewable energy independent power producer procurement programme (REIPPP), which is set to produce 6,783MW of additional capacity, including the 25 renewable energy projects (2,583MW) announced in October and 2,500MW in the next bid window.
The government has committed to procure up to R208.5bn in renewable energy from the programme, with its exposure decreasing incrementally over the next few years. It is exploring alternative support for the REIPPP to reduce or eliminate guarantee requirements for the programme.
The Treasury says risk mitigation power projects can generate up to 800MW, mining sector generation projects 4,000MW and municipalities 1,400MW.
Blom says self-generation is limited because companies are not in the business of generating power and only some will be able to make infrastructure investments. Renewables can be erratic (solar works 20% of every 24 hours and wind 30%) and unpredictable.
"You can’t run an economy on such erratic power availability. The hard answer is that you had better get Eskom fixed, or the economy dies," he says.
Godongwana said hard decisions and hard choices will have to be made, and the sale of assets are part of that, but Blom and BDO public sector head Yugen Pillay believe there needs to be a plan to ensure Eskom is sustainable and its debt reduced.
Pillay says that with R400bn of debt and the only thing committed to shoring up Eskom’s finances being R88bn until 2026, his concern is that Godongwana has not presented a clear path to bring debt down to an acceptable level.
"Eskom has been allowed to get to a stage where it is difficult to pull back. The intervention the minister is talking about is not sufficient, and more needs to be done," he says, adding that R20bn a year is "a bandage over a massive flesh wound".
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