Financially distressed electricity utility Eskom had been provisionally allocated R10 billion for its 2021/22 financial year in the Medium-Term Budget Policy Statement (MTBPS) in addition to the amounts allocated through the Special Appropriation Bill, which allocated R26 billion to Eskom.
However, Finance Minister Tito Mboweni stressed in his MTBPS speech on Wednesday that the government could not continue to throw money at Eskom, adding that all state-owned companies must be weaned off the national budget and learn to stand on their own feet.
Mboweni also announced that going forward, new cash flow support to Eskom would no longer be in the form of equity but in the form of loans.
“Once I am convinced the Eskom board and management has 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, he said.
Government financial support for Eskom is largely responsible for total government expenditure increasing in the current year and in 2020/21.
Provision for financial support for Eskom in the current year and over the medium term amounts to R161 billion, with R49 billion in 2019/20, R56 billion in 2020/21 and R33 billion in 2021/22.
Relative to the 2019 budget, the MTBPS shows an increase in main budget non-interest spending of R23 billion in 2020/21 and a reduction of R8.2 billion in 2021/22.
Mboweni said that for the sizeable support required by Eskom, it could not be business as usual.
What Eskom must do
He said Eskom must do a number of things, including running its current plant and equipment better; achieving other operational efficiencies, including much better cash management; and fast-track the separation of the utility into three parts as endorsed by the political principals.
There should be no doubt about the policy decisions in this regard. The minister of public enterprises has further elaborated on this in the paper released yesterday [Tuesday], he said.
Mboweni said the government has announced a comprehensive set of structural reforms for Eskom and the energy sector, which it is supporting with R230 billion over the next 10 years.
Very difficult budget adjustments have been made. To meet unanticipated cash needs, we have brought forward R26 billion in 2019/20, R33 billion in 2020/21 and R10 billion in 2021/20, he said.
He added that further delays in operational reforms could mean that additional support is required.
National Treasury listed a number of reforms that do not require significant state capacity and should boost economic growth over the next two years, and should be implemented without delay
In regard to the electricity sector, it said the granting of licences for small-scale power generation projects approved by the minister of energy should be finalised.
The fifth round of the Independent Power Producer (IPP) programme for renewable energy should begin, with estimated revenue gains of between R40 billion and R50 billion two to four years after the bid window is opened, it said.
National Treasury added that continued maintenance problems, cost overruns and delays at Eskom pose risks to the outlook for electricity generation.
It said other sources of generation continue to grow and of the 91 active renewable energy IPP projects, 64 were in operation in March this year, adding 3 976 megawatts of power to the national grid.
Once completed, the 27 IPP projects currently under construction are expected to add nearly 2.4 gigawatts to the grid, it said.
National Treasury said the government is committed to the separation of Eskom into three distinct entities – generation, transmission and distribution – in conjunction with the necessary organisational reforms to achieve operational efficiency.
Implementing this major reform successfully and timeously will require focus from Eskom management and the board, and work across government to resolve structural issues that affected Eskom’s financial viability, it said.
This separation will mark the beginning of a transition in the electricity sector from the dominance of an inefficient, vertically integrated monopoly to a competitive sector that includes a financially viable utility with clear lines of accountability, it said.