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2023-02-22 at 17:15 #394579Nat QuinnKeymaster
Eskom was allocated a massive R254 billion in debt relief over the next three years in the Budget on Wednesday.
The allocation is aimed at relieving the extreme pressure on Eskom’s balance sheet and allowing it to pay down its debt and interest obligations over the medium-term expenditure framework (MTEF) period.
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This will enable Eskom to restructure and undertake the investment and maintenance needed to support security of electricity supply.
Finance Minister Enoch Godongwana acknowledged in his Budget speech that domestic load shedding “has become more persistent and prolonged, impacting on service delivery and threatening the survival of many businesses”.
“Record levels of load shedding were experienced in 2022 – 207 days compared to 75 days in 2021.
“In response, we are acting decisively to bring additional capacity onto the grid. We are also working to transform the electricity sector to achieve energy security in the long term,” he said.
The 2023 Budget Review said the scale of Eskom debt relief will require a step change in public debt, which will result in government debt stabilising at 73.6% of GDP in 2025/26 – later and at a higher level than forecast in the 2022 Medium Term Budget Policy Statement – and decline thereafter for the rest of the decade.
Government’s gross loan debt is expected to increase as a result of the Eskom debt-relief arrangement from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26.
National Treasury acting director-general Ismail Momoniat stressed that the debt relief arrangement is subject to strict conditions.
Godongwana said the debt relief arrangement consists of two components: R184 billion representing Eskom’s full debt settlement requirement in three tranches over the medium term, and a direct takeover of up to R70 billion of Eskom’s loan portfolio in 2025/26.
He stressed the structure of the debt relief means Eskom will not need further borrowing during the relief period.
The Budget Review said the current R350 billion Eskom guarantee framework agreement expires on 31 March 2023, which means it will not be able to draw down any new guarantees from 1 April 2023.
A condition of the debt relief arrangement is that, with the settlement or takeover of guaranteed Eskom debt, the contingent liability exposure will decline by the associated amount.
“The Eskom guarantee is projected to decline by R118.9 billion by the end of 2025/26. In this regard, the debt-relief arrangement will reduce government’s contingent liability exposure,” it said.
Tax relief proposals
Godongwana also announced a number of tax proposals in his Budget that are linked to Eskom’s dire generation capacity problems, including:
Tax relief totalling R13 billion in 2023/24 to support the clean energy transition, increase the electricity supply and limit the impact of consistently high fuel prices.
R4 billion in relief for individuals who install solar panels and R5 billion to companies through an expansion of the renewable energy tax incentive.
An extension to the diesel fuel levy refund to manufacturers of foodstuffs for a period of two years from 1 April 2023 until 31 March 2025 to limit the impact of the energy crisis on food prices.
A drain on the economy
Commenting on the rationale for the debt relief arrangement, the Budget Review said Eskom’s operational failures are intertwined with its untenable financial position.
It said the government has since 2008/09 provided Eskom with R263.4 billion in bailouts, but these allocations have failed to stem the collapse of Eskom’s balance sheet and operations.
“The utility imposes an enormous drain on the economy and its debt stands at an unsustainable R423 billion.
“Government guarantees R350 billion of this debt, which is at risk of default – a contingent liability that raises South Africa’s risk premium and borrowing costs,” it said.
Godongwana said municipalities owed Eskom R56.3 billion at end-December – significant increase from the R39.8 billion they owed Eskom at end-June 2022.
The review said the key features of the debt relief arrangement are that:
Government will provide Eskom with advances of R78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26 to cover capital and interest payments as they fall due and may only be used for that purpose.
These amounts will be financed through the R66 billion Medium Term Expenditure Framework (MTEF) baseline provision in the 2022 Medium Term Budget Policy Statement (MTBPS), and R118 billion in additional borrowing over the MTEF period ahead.
Government in 2025/26 will directly take over up to R70 billion of Eskom’s loan portfolio.
The success of the debt relief arrangement rests on the implementation of key reforms that address the inadequacies of the transmission network and performance of existing power stations.
The implementation of these key reforms is subject to the following obligatory conditions:
Eskom, the National Treasury and the Department of Public Enterprises have agreed to design a mechanism for building new transmission infrastructure that will allow for extensive private-sector participation in the development of the transmission network.
National Treasury has appointed an international consortium with extensive experience in the operations of coal-fired power stations to review all plants in Eskom’s coal fleet and advise on operational improvements, with this review is scheduled to be conclude by mid-2023.
Eskom is required to implement the operational recommendations emanating from this independent assessment, which will include a determination of which plants can be resuscitated to original equipment manufacturers’ standards, following which Eskom must concession all these power stations with clear targets for the electricity availability factor and operations.
The review said government is also taking urgent measures to reduce load shedding in the short term and transform the sector through market reforms to achieve long term energy security.
It said the National Energy Crisis Committee (NECOM) in the short term aims to improve the availability of electricity and facilitate investment in generation capacity.
If planned investments are implemented rapidly, 6 484 MW could be added to the grid over the next 24 months, it said.
Specific actions include:
Improving Eskom’s plant performance, ensuring it procures power from existing
independent power producers and importing power from neighbouring countries.
Clearing regulatory obstacles by establishing a one-stop shop to bring electricity onto the grid more rapidly. This will be supported by the Energy Security Bill, which removes regulatory impediments for independent power producers.
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