While Treasury’s budget provides no indication of government’s thinking around restructuring Eskom’s debt, Finance Minister Tito Mboweni has cautioned against a push for state worker pensions to be used to bail out the utility.
“It’s not a bad idea but we must be clear that we are not suggesting that only public service workers’ pensions must be used to save Eskom – if we are going to save Eskom it must be all of us,” Mboweni told journalists ahead of his presentation of the budget speech on Wednesday.
Over the past two months high level conversations between government, labour and business have taken place at National Economic Development and Labour Council (Nedlac), spurred by trade union federation Cosatu’s proposal to relieve the utility of R250 billion of its debt mainly using money from the Government Employee Pension Fund (GEPF) and state development finance institutions.
The discussions seemed to progress quite rapidly as government, labour and business voiced their support for the plan and drafted a framework that would form a social pact between the parties. But the question of using GEPF money including that of other private pension funds has put a break on the discussions as social partners tease out the details on how this will be effected without compromising the stability of the financial system.
Cosatu has since asked for public submissions for other ideas on how to tackle Eskom’s debt.
Mboweni noted that the suggestion that the Public Investment Corporation’s investment in Eskom be converted to equity is a good idea and shows that the debate is moving forward and is an indicator that stakeholders’ ideologies about introducing private sector investment into Eskom are aligning.
Eskom’s fat share of bailouts
Eskom, which provides 95% of the electricity used in the country and 45% of the electricity used on the rest of the continent, is considered the biggest threat to South Africa’s economy, along with low growth.
The utility sits with a debt burden of over R450 billion that it is unable to service due to operational and structural inefficiencies as well as non-payments from municipalities and certain customers.
“We make reference to Eskom in passing,” Mboweni said to the media outlining the details of the budget.
“We did not want to talk a lot about Eskom in this budget speech. I think the Eskom story is tired now and we do not have anything new to say about this,” he added.
Mboweni however said the state would do “whatever it takes” to ensure that there is stable electricity supply.
The budget review documents state that over the past 12 years, the state has given R162 billion in bailouts to state-owned entities – the quantum of which, 82% to be exact, has gone to Eskom. Other beneficiaries are South African Airways, Denel, SA Express and the public broadcaster SABC.
The total amount of bailouts will grow to R291.2 billion when you factor in the allocated amounts that will be released over the next three years.
This means that by 2022 Eskom will account for R244.7 billion of the total bailouts that government has extended since 2008.
No additional allocations to Eskom were made in the 2020 budget outside of the R230 billion announced in the 2019 budget that would be spread out over 10 years and the additional R69 billion announced in the same year.
Treasury however emphasised that the utility is undergoing a reform process that will see its generation, transmission and distribution operations separated as outlined in the roadmap published by Minister of Public Enterprises Pravin Gordan.
Eskom is in the process of appointing the boards and management for each entity.
“These are the first steps in the necessary restructuring of South Africa’s electricity sector for the 21st century,” sates the budget document.
Mboweni reiterated the measures outlined in President Cyril Ramaphosa’s State on the Nation Address, saying that Bid Window 4 of the renewable energy programme is being accelerated and this will give new momentum to Bid Window 5.
“Determinations to implement the Integrated Resource Plan of 2019 are finalised and await the concurrence of the National Energy Regulator,” said Mboweni.
Lastly, municipalities with good balance sheets will also be able to purchase electricity from independent power producers.