Publications
Partners
Government will help Eskom with its debt, but National Treasury may send its own experts to the electricity supplier’s power stations to find out what exactly is wrong.
This is one of the conditions for comprehensive debt relief that Finance Minister Enoch Godongwana is expected to announce this week to keep the struggling parastatal afloat.
This is what Intellidex, which researches capital markets, says in a preview of Godongwana’s budget speech on Wednesday. Eskom’s debt stood at a whopping R422 billion by the end of December.
In the current financial year, it has to repay R81 billion in capital and interest, and in the next three financial years, it must pay about R200 billion. But the power utility has no money.
Its government guarantee has been almost fully used and, without that, it is almost impossible to get further financing. The little money available comes with very high interest rates because of the risk that financiers associate with Eskom.
That is why the expected announcement by Godongwana is of critical importance for Eskom.
The minister promised during his mini budget speech in October that government would take over between a third and two-thirds of Eskom’s debt. He said he would provide the details during his budget speech this week.
This makes financial sense because government is subject to lower interest rates on its loans and must in any case help Eskom out of trouble if the power utility has nothing left.
Treasury has so far been reluctant to assist because of fears that other state institutions will then rely on the same government help rather than working on resolving their financial affairs.
During Godongwana’s speech in October, the outstanding debt was estimated to be nearly R400 billion.
The latest debt figures and obligations appear in an affidavit from Eskom’s chief financial officer, Calib Cassim. The statement was made in response to court applications to set aside Eskom’s 18.65% tariff increase, which takes effect on April 1.
Eskom regularly refinances its debt, but, according to Cassim, the power utility cannot finance its plan until it knows what Godongwana’s announcement will entail.
Cassim says in his affidavit:
Cassim says that, if the rates are lowered, Eskom will still not be sustainable, even if it gets help.
To achieve this, it will therefore cost government even more.
Intellidex expects Godongwana’s announcement about Eskom to be the most important element of this year’s budget. The group believes that Treasury understands that it is necessary to announce a complete plan and expects that government will take over R230 billion of Eskom’s debt in three steps that will span two years.
The first step is expected to take place by the middle of the year, with government taking over about R157 billion in debt.
Intellidex believes the conditions will aim to prevent any foolishness from whoever succeeds André de Ruyter as CEO and to limit populist decisions in the run-up to next year’s national elections.
READ: Will the PIC rescue ailing Eskom?
The group warns that there is great uncertainty about the implementation of the plan, with a new electricity minister and a new CEO at Eskom.
However, Intellidex believes the root of the massive debt relief plan will keep everyone more or less on the right track.
“We see the announcement about Eskom as a big Rubicon moment,” says Intellidex.
Figures released by Eskom on Wednesday show that the available power generation capacity the previous week, in relation to the maximum power that could be delivered, was only 55%.
