Pressure mounts for Eskom, Transnet to reveal Chinese loan terms

Details surrounding commercial loans secured by state-owned companies Eskom and Transnet from Chinese state banks, which were announced with fanfare at the start of the 10th Brics summit in Johannesburg on Tuesday, have been cloaked in secrecy.

As part of efforts to strengthen the balance sheet of embattled state-owned entities, Eskom secured a $2.5 billion (R33.2 billion) loan from the China Development Bank, while the Industrial and Commercial Bank (ICB) extended R4 billion to Transnet.

Both loans have been described as “normal commercial loans” that are guaranteed by the government, which Eskom will use to fund the construction of the Kusile coal-fired power station. Meanwhile, Transnet will deploy the funds for “general corporate uses”, providing the port and freight-rail operator “with liquidity in the near term”.

Although Eskom and Transnet were more than happy to disclose details of the loan repayment periods, both refused to disclose the interest rate agreed with the Chinese banks. Eskom said the loan is repayable in 15 years while Transnet’s loan repayment period has been pencilled in at five-and-a-half years.

Eskom spokesperson Khulu Phasiwe said the power utility cannot disclose the interest rate “due to commercial reasons”.

“It was a favourable rate,” he told Moneyweb.

Transnet didn’t respond to Moneyweb’s question about the interest rate on its loan with the ICB. Asked if there were conditions tied to the loan, a Transnet spokesperson said there were “no conditions”.

Loans of this nature typically have conditions attached. In the case of Eskom, for example, the condition would be for it to enter into a service agreement to purchase Chinese inputs or technology in the production of electricity. Essentially, SA would be tied into import agreements with China.

Deputy minister of international relations and cooperation Reginah Mhaule said SA and China are benefitting “equally” from the loan agreements. “I don’t think there are strings attached [to the Eskom and Transnet loans]. We are one community under Brics. We are bringing the whole of Africa into Brics and not just SA, thus the continent is benefitting,” Mhaule told Moneyweb.

“From a distance, it may seem that China is benefitting. But I am seeing both countries benefitting equally. The Chinese are transferring their money and skills so that the South African economy can grow. We are benefitting.”

Market watchers who have observed the Chinese state-owned bank model said a bank like the China Development Bank, which provided funding to Eskom, could provide lower interest rates and longer-term loans than other commercial Chinese banks. This is due to the fact that the Chinese state has full ownership of the China Development Bank and implicitly guarantees its debt, giving it the firepower to take on larger risk.

Eskom and Transnet, which are facing credibility issues and difficulties in raising money on debt capital markets following their involvement in the corrosive state capture project, faced increased pressure on Wednesday to unveil the terms of their loans.

“A loan of this magnitude, with more to come, must be as transparent as possible,” says Natasha Mazzone, the Democratic Alliance (DA) spokesperson for public enterprises. “This is especially important given that the taxpayer will most probably have to foot the bill when it is time to make repayments, with future electricity tariff hikes expected.”

Mazzone said the DA would write to the chairperson of the Eskom board, Jabu Mabuza, to request that Eskom make the terms of this loan public, particularly the repayment terms of the loan, the agreed-upon interest rate, and the guarantees provided to the bank.