Finance Minister sets tougher conditions for Eskom cash support

Wednesday, October 30, 2019

Finance Minister Tito Mboweni says going forward, any cash injection aimed at supporting the cash flow for embattled power utility Eskom will be in a form of loans, and not equity. 

In a strongly-worded announcement during his Medium-Term Budget Policy Speech (MTBPS) on Wednesday, Mboweni said it can no longer be business as usual at Eskom and that the power utility’s power plants and equipment need to be run better. 

He said this a day after Public Enterprises Minister Pravin Gordhan released a Special Paper that is aimed at providing a roadmap for electricity generation and distribution at Eskom. 

“Going forward, new cash flow support will no longer be equity but will be in the form of loans. 

“Once I am convinced that the Eskom board and management have made an irrevocable commitment to implement government’s decisions and there is enough progress, we will negotiate the appropriate size of debt relief. 

“Eskom is a business and should be run that way,” Mboweni said. 

Releasing the Special Paper on Eskom in Tshwane on 29 October 2019, Gordhan told journalists that the unbundling of Eskom -- announced by President Cyril Ramaphosa in his State of the Nation Address in February -- will see the power utility separating its transmission component into a subsidiary of Eskom Holdings by March next year, with the generation component to be divided into three clusters to allow intra-company competition between power plants. 

Tabling the mini-budget, Mboweni said government has announced a comprehensive set of structural reforms for Eskom and the energy sector, which "we are supporting with R230 billion over the next 10 years." 

This was accompanied by very difficult budget adjustments. 

To meet unanticipated cash needs, National Treasury brought forward R26 billion in 2019/20, R33 billion in 2020/21 and R10 billion in 2021/20. 

Further delays in operational reforms could mean additional support is required. 

“We cannot continue to throw money at Eskom. For the sizeable support required, it cannot be business as usual,” he said. 

Mboweni said Eskom needs to:

- Run their current plant and equipment better;

- Achieve other operational efficiencies, including much better cash management;

- Fast track the separation of the utility into three parts, as endorsed by the political principals. 

Challenges for Eskom 

Meanwhile, National Treasury said in its Budget Review that Eskom remains the most serious risk to the fiscus, as it has a significantly high debt burden and has made limited progress with the necessary reforms announced in February this year. 

Eskom had used R289 billion of its R350 billion government guarantee facility by 31 August 2019, with another R43 billion committed to specific funding instruments but not yet used. 

“The utility relies on government support, borrowing from existing facilities and securing new debt to maintain a positive cash balance. In the current financial year, government has provisionally allocated appropriations totalling R49 billion for Eskom,” National Treasury said. –