Government to provide Eskom with debt relief over three years: Godongwana
Government will provide Eskom with debt relief over three years, allowing it to restructure and maintain its balance sheet. Finance Minister Enoch Godongwana announces that the state will take over R254 billion of Eskom debt.
The government’s decision to absorb a portion of Eskom’s R400-billion debt will push up the country’s debt higher. The plan will lead to the government debt rising to 73.6% of GDP in 2025/2026.
Godongwana says this is necessary to reduce the financial pressure on the utility allowing it to invest in plant maintenance. Godongwana was delivering his 2025 national budget in parliament.
In terms of the debt arrangement – the government will provide R78 billion in the current financial year. It will be followed by R66 billion in the second year and R40 billion in the final year.
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Government will also take over up to R70 billion of Eskom’s loan book portfolio in 2025/26. This will be done by switching selected debt instruments into government debt. It will be financed by issuing both short- and long-term loans in the domestic market.
Godongwana explains, “These figures include the impact of the partial take-over of Eskom debt, which I will elaborate on later. Mainly due to this Eskom debt relief, government debt will stabilise at a higher level of 73.6% of GDP in 2025/26. This is three years later than anticipated in the 2022 Medium Term Budget Policy Statement. In general, government debt is high. The gross debt stock is projected to increase from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26. And because debt is high, our debt-service costs are also high.”
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Godongwana says the assistance will come with strict conditions. Eskom will have to implement key reforms that address the challenges with its transmission network and improve the performance of existing power stations. The National Treasury has appointed an international consortium to review Eskom’s coal fleet and advise on operational improvements. The review is expected to conclude by mid this year. Eskom will be required to implement the operational recommendations from this independent assessment. Upon complying with the conditions, the loan will be converted to state-owned equity.
Government says under the conditions of its debt-relief arrangement, Eskom’s borrowing powers will be significantly curtailed.
According to Godongwana, the government is developing a viable strategy to address the enormous municipal debt owed to Eskom. He claims that the risks connected to such a plan must first be addressed.
A solution is being developed by the government and Eskom because some municipalities will never be able to pay off their debt. Eskom is owed over R56 billion by municipalities.
“Undertaking a debt relief of this magnitude without addressing this risk would be counterproductive. We are working with Eskom to provide a solution to this problem, wherein Eskom will provide incentivised relief to municipalities whose debt is unaffordable. However, the relief will come with conditions. And to avoid a repeat of debt build-up over time, the relief will attach measures, including the installation of prepaid meters, to correct the underlying behaviour of non-payment and operational practices in these municipalities.”
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Meanwhile, the National Treasury is developing compulsory national norms and standards to address the over-billing of electricity by municipalities. The measures will regulate municipal surcharges on electricity and identify alternative sources of revenue to replace electricity surcharges. The standards will also provide clarity for municipalities and ensure that the process of determining surcharges is transparent and result in affordable surcharges.
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Source: SABC News (sabcnews.com)
