Doubling of renewable energy project limit proposed in the budget

An increase in the limit for renewable energy projects that can qualify for the carbon offset regime from 15MW to 30MW has been proposed in the budget to promote further investment in renewable energy.

Minister of Finance Enoch Godongwana announced this in his budget speech on Wednesday.


Godongwana admitted that load shedding is a problem that confronts all South Africans because it disrupts production, operations and livelihoods.

He said it is through the combination of private investment in new energy projects, rooftop solar installations and improvements in Eskom’s generation fleet that load shedding will reduce and reliability and security of supply improve.

“Reforming the sector will result in long-term energy security. We took the necessary decisions in the past five years, and these are bearing fruit.

“Eskom continues to be a key role player in the electricity sector. And the debt relief plan allows the entity to focus on its core business.

“We will release the report on the independent review of Eskom’s coal-fired power stations in the coming week. The review was done to inform part of the conditions attached to the debt relief plan.

“The recommendations will feed into Eskom’s corporate plans to bolster accountability and oversight,” he said.

Smart prepaid meters rollout

The Budget Review said National Treasury is engaging with the Ministry of Electricity, the minister of Public Enterprises and Eskom on how to include these recommendations in the operational conditions for 2024/25.

Godongwana added that to support these efforts, the government will be introducing a new R2 billion conditional grant over the medium term to fund the rollout of smart prepaid meters.

This will begin with municipalities that have been approved for debt relief, he said.

SOEs in distress

Despite the somewhat upbeat message in the budget on energy, the Budget Review painted a dismal and depressing picture of the financial position of state-owned enterprises (SOEs), including Eskom.

It said most SOEs remain in distress due to weak governance, financial strain and poor operational performance.

The review lamented the fact that the expansion of financial support to SOEs is a key driver of South Africa’s increasingly constrained fiscal position.

“Eskom has dominated these bailouts. From 2008/09 to 2022/23, Eskom received R241.6 billion in fiscal support.

“In some cases, rapid injections through the budget had little to no impact on the service offering.

“For example, South African Airways (SAA) received a total of R48.2 billion over six years and still went into business rescue,” it said.

The review said Eskom and Transnet are implementing reforms in line with their respective debt relief and guarantee conditions, but the progress is slow.

Many SOEs have failed to implement their turnaround plans, resulting in deteriorating profitability, an increased need for guarantees to borrow, and more requests for bailouts, it added.

The review said there is also a growing trend of entities failing to submit their financial statements on time, largely due to going concern issues.

SOE guarantees

The review said government has been working to reduce its exposure, as expressed by the guarantee portfolio of these companies, with loan guarantees issued between March 2022 and March 2023 declining from R559.9 billion to R478.5 billion.

Total approved guarantees to SOEs are expected to increase by R33 billion to R503.3 billion by 31 March 2024, while the exposure amount will decrease by about R16.6 billion to R416.3 billion.

Eskom accounts for 85% of the government exposure.

The main guarantee and exposure changes during 2023/24 were:

  • A decline in SA National Roads Agency (Sanral) exposure of R8.7 billion to R29.5 billion due to redemptions;
  • Transnet was granted a new guarantee of R47 billion, with R22.8 billion available for immediate use, to address persistent challenges relating to liquidity and supply chain backlogs; and
  • Godongwana, in December 2023, withdrew historical guarantees from Denel totalling R5.9 billion following the expiration of part of the guarantees and the non-use of another portion.

Over the next three years, government will make three transfers to Eskom for capital and interest payments.

In 2023/24 government will transfer R76 billion, and in 2024/25, a further R64.2 billion to Eskom, with transfers in each of these years R2 billion lower than projected because of the power utility’s failure to conclude the disposal of the Eskom Finance Company, as stipulated in the debt relief conditions.


In 2025/26, government will transfer R40.2 billion to Eskom, and in the same year, it will take over a maximum of R70 billion of Eskom’s debt by switching selected debt instruments into government debt.

SOEs’ profitability declines

The average profitability of SOEs measured by return on equity deteriorated from ‐2.6% in 2021/22 to -7.7 % in 2022/23, with this negative return on equity largely the result of weak revenue growth, high costs and elevated debt service costs.

Insufficient revenue collection and high operating costs continue to reduce the cash available to SOEs to fund business operations.

Net cash available after interest, debt service and capital expenditure declined by 39.1% to ‐R119 billion in 2022/23.

The review said SOEs are struggling to access capital markets without government guarantees and increasingly request bailouts to service debt and fund turnaround plans, which is unsustainable.

“These bailouts erode policy space, as they require the redirection of resources from key public service priorities, such as education, public safety and criminal justice, to entities that are meant to be financially self-sufficient,” it said.

Borrowing by SOEs in 2023/24 is expected to decline by 61.6% to R36.3 billion from R94.5 billion budgeted in 2022/23.

In aggregate, Eskom and Transnet account for 92.3% or R33.5 billion of planned borrowing for 2023/24.

Eskom generated a loss of R24 billion in 2022/23, with its financial sustainability compromised by poor generating performance, declining sales, the utility’s increasing primary energy costs, escalating municipal arrear debt and high debt service costs.

The review said the power system remains unpredictable and unreliable, with power cuts expected to continue until the capacity shortage of 4,000MW to 6,000MW is addressed.

The Eskom debt relief arrangement in its first year is designed to address financial and operational weaknesses.

IFC partnership

The review said government has been working in partnership with the International Finance Corporation to agree on short-term options for off-balance sheet financing to accelerate private sector investment in transmission without negatively affecting Eskom’s balance sheet and the fiscus.

A pilot project will be implemented to test the market appetite for the proposed option, with a request for proposals expected to be issued by end‐July 2024.


The review said Transnet’s performance has been very poor, with operations strained by its deteriorating financial state.

Transnet reported a net loss of R5.7 billion for 2022/23, and its inability to generate sufficient cash from operations has seen total borrowing increase from R122.6 billion at end‐March 2018 to R131.8 billion by end‐December 2023, increasing the burden of interest cost, refinancing risk and liquidity pressures.

The government provided a R47 billion guarantee to Transnet in December 2023 to assist with maturing debt and the implementation of a recovery plan, with the entity granted approval to use only R14 billion of the guarantee between December 2023 and March 2024 to pay off maturing debt.

This is to ensure that Transnet implements the short-term initiatives in the recovery plan and aligns it with the Cabinet‐approved roadmap for freight logistics.

The key areas identified to improve Transnet’s operational performance in the short term include accelerating capital spending on operational equipment, such as port cranes, marine vessels and rail rolling stock, while the rail recovery focuses on allocating capital for the rehabilitation of rail infrastructure and returning older locomotives to service.

In terms of Transnet’s recovery plan to improve its sustainability, it is required to divest non-core assets, reduce its current cost structure and explore alternative funding models for infrastructure and maintenance, including project finance, third‐party access, concessions and joint ventures.


The review said Denel remains unable to fulfil its financial obligation and has not submitted annual financial statements for the last three years despite being allocated R3.4 billion through the Special Appropriation Act in 2022, with conditions related to the implementation of its turnaround plan and future sustainability.