News24.com | Budget 2023 | Huge bailout for Eskom to come with strings attached

Finance Minister Enoch Godongwana.

• Government is planning a massive debt relief for Eskom.
• But the bailout will come with conditions attached including that it concession out power stations to the private sector. 
• Debt relief for Eskom will raise government borrowing. 
• For more financial news, go to the News24 Business front page.

The National Treasury will relieve Eskom of R254 billion of its debt over the next three years but has imposed far-reaching conditions, which include that it concession out some of its power stations to the private sector. 

The Treasury hopes that the debt relief will set the company on a path to sustainability. Eskom has R422 billion of debt, mostly incurred from the building of mega power stations Medupi and Kusile, which it cannot service from the revenue it earns. This has weighed down Eskom's operational capacity, impeded cash flows for crucial functions like maintenance and limited its ability to borrow to expand the transmission grid. 

The debt relief arrangement will see the government taking responsibility for all Eskom's debt repayments as it matures and annual interest costs. These amount to R78 billion in 2023/24, R66 billion in 2024/25, and R40 billion in 2025/26.

In 2025/26, the Treasury will also take over up to R70 billion on Eskom's loan portfolio. The Treasury believed the arrangement was equitable and fair to all Eskom's creditors. The Budget Review says: 

The amounts will be transferred to Eskom in the form of an interest-free loan as the debt matures and interest becomes due on an annual basis. Should all conditions be met, the loan will be converted to equity in Eskom. The loan will become repayable at market rates if the conditions are unmet. 

READ | Big Eskom move needed in the Budget - even R200bn in debt relief not enough, warns investor

The debt relief is subject to a review of all Eskom's coal-fired power plants by an international consortium appointed by the Treasury. Eskom will be required to implement the operational recommendations made by the consultants, which will also determine which of the power stations "can be resuscitated to original equipment manufacturers' standards". These power stations will then be concessioned to the private sector with clear targets for energy availability and operations. Additional conditions include that:

• Eskom capital expenditure borrowing be confined to investment in transmission and distribution, and no new generation projects may be funded.
• Any funds raised from the sale of non-core assets must be put towards debt relief.
• The debt relief can only be used for debt repayments and interest.
• Eskom may not make any adjustments to remuneration that negatively affect its financial position

Eskom's debt relief will result in increased borrowing for the government. As a result, a key fiscal ratio – the relationship of debt to GDP – will continue to rise until 2025/26 when it stabilises at 73.6%. This is two years later than projected in the medium-term budget policy statement tabled last October. 

Treasury said it was working on a solution to unpaid municipal debts but that this required a tailored solution for each municipality.