Eskom’s R5bn Treasury transfer delayed

National Treasury has delayed the transfer of R5 billion of the R23 billion equity injection granted as part of a five-point plan to address power shortages December 2014.

The utility had already received R10 billion of the allocation in July 2015. Only half of the second R10 billion tranche was however transferred in December 2015, because Eskom had failed to meet the conditions for the allocation.

The outstanding R5 billion will only be paid in March, if Eskom complies with the conditions that deal with cost reductions, maintenance improvements and the execution of its capital expenditure plan, namely the construction of its Medupi, Kusile and Ingula power stations.

Moneyweb has learnt that National Treasury wants a further update on the R60 billion cost reduction Eskom has committed to over the five-year tariff period ending March 31, 2018 (MYPD3) and it requires Eskom to get cabinet approval of its revised capital expenditure schedule.

The budget pointed out that Eskom has applied to the National Energy Regulator (Nersa) for a tariff increase. This will be decided a day after the delivery of the budget speech and implemented on April 1 for direct Eskom customers and July 1 for municipal customers.

The Budget Review states: Further efficiency improvements are necessary at Eskom to ensure moderation in future tariff increases.

Eskom accounts for 75% of government’s total guarantees of R467 billion to State-owned companies and 65% of the R258 billion borrowed against such guarantees. It was pointed out in the Budget Review that only the amounts actually borrowed constitute government exposure.

Eskom’s borrowings against its government guarantees increased by R18.6 billion in 2015/16.

According to the Budget Review Eskom reported in its half-year results of September 30 2015, expenditure of R24.4 billion of a budgeted R32.1 billion on infrastructure, while securing a total of R46 billion in funding.

The power purchase agreements between Eskom and Independent Power Producers (IPPs) for renewable energy add about R200 billion to government’s contingent liabilities.

These are long-term contracts that oblige Eskom to purchase electricity from the IPPs over a period of 20 years at a price determined by Nersa.

According to the Budget Review, government will have to buy the electricity if Eskom is unable to do so. “The probability is low, since the regulator approves tariff increases that accommodate these agreements. However, significant deterioration in Eskom’s financial position may increase government’s risk exposure.”