https://www.engineeringnews.co.za
Business|Coal|Energy|Financial|Power|rail|Renewable Energy|Resources|Service|Sustainable|Water|Maintenance|Infrastructure
Business|Coal|Energy|Financial|Power|rail|Renewable Energy|Resources|Service|Sustainable|Water|Maintenance|Infrastructure
business|coal|energy|financial|power|rail|renewable-energy|resources|service|sustainable|water|maintenance|infrastructure

R69bn in support for Eskom made conditional on restructuring

Finance Minister Tito Mboweni

Finance Minister Tito Mboweni

Photo by Bloomberg

20th February 2019

By: Terence Creamer

Creamer Media Editor

     

Font size: - +

Finance Minister Tito Mboweni has turned down a proposal for R100-billion of Eskom’s debt to be transferred across to the National Treasury, but has instead announced R23-billion a year in financial assistance for the debt-laden utility that is directly tied to a restructuring of the business.

Over a three-year period the assistance would amount to R69-billion, which Mboweni stressed was designed to help Eskom with its reconfiguration and pay off debt and “not to pay salaries”.

Beyond the medium term, the National Treasury indicates the size of support will depend on several factors, including economic growth, tariffs and the implementation of Eskom’s strategy. However, it has already been reported by Business Day that it could be R150-billion over ten years.

In his earlier State of the Nation Address, President Cyril Ramaphosa announced that the utility would be separated into three independent companies of generation, transmission and distribution, under Eskom Holdings.

The plan, which arose from a recommendation of a task team established in December to make recommendations on Eskom’s sustainability, has been heavily criticised by trade unions, which perceive it as a precursor to retrenchments and privatisation.

The President stressed that all three entities would remain State owned and indicated that Mboweni would use his Budget to outline further financial support for Eskom, which has accumulated more than R420-billion in debt and which is set to make a loss of R20-billion during the 2018/19 financial year.

Mboweni said the subdivision would set Eskom and the electricity market on a new trajectory and allow for more competition, transparency and a focused funding model.

WATER INTO A SIEVE

In confirming direct fiscal support of R23-billion a year for the utility a direct link was drawn between the unbundling and the transfers, with Mboweni arguing that “pouring money directly into Eskom in its current form is like pouring water into a sieve”.

The R23-billion would allow Eskom to service its debts and meet redemption requirements, while making resources available for urgent operational improvements. The need for power station maintenance had been highlighted in recent weeks when the utility resorted to load-shedding, after losing seven coal-fired generating units in a single day.

The injection had also been made conditional on the appointment of a Chief Reorganisation Officer, or CRO, who would be responsible for ensuring that the recommendations of the Presidential task team on Eskom were implemented.

Mboweni and Public Enterprises Pravin Gordhan would appoint the CRO jointly and an announcement in this regard would be made in the coming weeks. The Finance Minister likened the CRO to the appointment of a curator when banks require State support.

The Budget Review document released along with the Budget also revealed that the Eskom board was in the process of developing a sustainable operational plan for each business, which government would consider within the next three months.

“The financial support package, with strict conditions attached, will enable Eskom to restore positive cash flows, and secure the necessary liquidity to undertake urgent maintenance to restore stable electricity supply,” the review stated, adding that Eskom’s board would be asked to sign a new shareholder compact.

In addition, executive remuneration would be tied to performance and streamlining of mid-level management will continue. “Further steps in restructuring the electricity market will be announced in the months ahead.

PARTNER FOR GRID COMPANY

The first step in the separation process would be to transfer a portion of Eskom’s assets to a new transmission company, which would invite the participation of strategic equity partners that will provide capital for the business and strengthen oversight.

Mboweni argued that the inclusion of partners at what he termed the national grid company did not equate to privatisation. Nevertheless, he criticised what he described as a prevailing “psychology” that failed to recognise that the world was in a “post-Soviet” era, which had implications for State-owned Enterprises (SoEs) and the structure of markets.

“The status quo is not working, we need to cross the Rubicon into Rome.”

In electricity, Mboweni said there was a need for competition in the generation sector, which had already begun with the inclusion, in recent years, of independent power producers (IPPs).

The Budget Review also argued that establishing a more competitive electricity sector would improve business and consumer confidence, encourage private investment and reduce upward pressure on prices.

“Over time, this reform will encourage the expansion of renewable energy sources in the country’s energy mix,” it added, highlighting that government’s Renewable Energy Independent Power Producer Procurement Programme had, to date, procured 6 422 MW of electricity from 112 IPPs.

The Minister acknowledged that there would be resistance to some of the changes at Eskom where a “particular culture is embedded” and said forums should be created to communicate the changes to trade unions, bondholders and consumers.

He even suggested the need for a broader summit to discuss the future of SoEs, including where government’s scarce resources should be directed.

By way of example he argued that he would be in favour of directing resources towards the rail and taxi industries, which provided mobility for workers, rather than extending yet further support of South African Airways.

NOT TAKING OVER ESKOM DEBT

Mboweni also stressed that the national government would not take on Eskom’s debt. “Eskom took on the debt. It must ultimately repay it. We are setting aside R23-billion a year to financially support Eskom during its reconfiguration,” Mboweni added.

The debt-transfer proposal has been in circulation for a number of months amid warnings that it would significantly add to government’s already significant debt burden and result in a downgrade by Moody’s, which is the last of the big-three ratings agencies to have sustained South Africa’s investment-grade rating.

Nevertheless, taxpayer support for Eskom was considered inevitable in light of the risks it posed to the economy and public finances.

The support for Eskom, together with allocations for an infrastructure fund and the 2021 Census, was listed as a major reason for the R14-billion upward revision to the 2019/20 expenditure ceiling.

REVIEW OF SOE SUPPORT

The Finance Minister also announced that the support framework was being reviewed for all SoEs, while announcing that the contingency reserve had been increased to R13-billion in 2019/20 to respond to possible requests for financial support.

“We must tighten the guarantee rules. If an SoE applies for a government guarantee for operational purposes, it will be required to appoint a CRO in concurrence with the National Treasury and its bondholders,” Mboweni said.

“Cabinet is considering a proposal to end the issuing of guarantees for operational purposes. Expiration dates on guarantees will also be strictly enforced. As the President announced, strategic equity partners will be found where possible.”

Edited by Creamer Media Reporter

Comments

Showroom

Condra Cranes
Condra Cranes

ISO-certified Condra manufactures overhead cranes, portal cranes, cantilever cranes and crane components: hoists, drives, end-carriages, brakes and...

VISIT SHOWROOM 
SAIMC (Society for Automation, Instrumentation, Mechatronics and Control)
SAIMC (Society for Automation, Instrumentation, Mechatronics and Control)

Education: Consulting with member companies to obtain the optimal benefits from their B-BBEE spending, skills resources as well as B-BBEE points

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.108 0.175s - 181pq - 2rq
Subscribe Now