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‘And everybody wins,’ says Eskom CFO.
Eskom has pencilled in a debt ceiling of R250bn as it looks to limit borrowings. Picture: Gallo Images
Finance Minister Enoch Godongwana announced in his budget speech on 12 March that a simplification of government’s R254 billion debt relief to Eskom resulted in savings of “about R20 billion” for the fiscus.
The debt relief, initially announced as a three-year programme “to strengthen its balance sheet, restructure the business and invest in necessary maintenance”, was set to end in 2025/26 with a final allocation of R40 billion.
The 2023 Eskom Debt Relief Act stated:
According to the 2025 Budget Review, “by 31 March 2025, government will have advanced R140 billion in debt relief to Eskom”.
“This is a reduction of R4 billion from the original amount projected up to this point, owing to the utility’s failure to meet the deadline for the disposal of the Eskom Finance Company.
“Under the terms of the arrangement, the remaining elements are a R40 billion advance and a R70 billion debt takeover scheduled for 2025/26.”
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Eskom CFO Calib Cassim explains that the terms of the R70 billion debt takeover had not yet been finalised, and it could, for example, be stretched out over 10 years.
“They could [for example] have said they will pay the debt and interest that matures in 2033,” he says.
Considering the pressure on the budget, the need to limit government borrowings, and the fact that Eskom has a big upcoming payment of R39 billion for debt maturing on 2 April 2026 and another of R10 billion in 2027/28, Eskom and National Treasury agreed that government would rather settle these two amounts and finalise the debt relief programme.
This would replace the R70 billion debt takeover.
“It is better to get about R50 billion in three years than when it would have been stretched out over 10 years,” Cassim says. “Everybody wins.”
“In summary, over the five-year period, government will have provided Eskom with loans to the value of R230 billion to assist the utility in repaying its debt. This is about R24 billion less than projected at the outset, reducing the gross borrowing requirement [for government].”
The Budget Review states: “In accordance with the original agreement, the debt relief provided to Eskom will be converted into government equity over time.”
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During the presentation of its annual results for the 2023/24 financial year in December, Cassim said government’s debt relief package has already assisted in stabilising Eskom’s balance sheet.
Source: Eskom
However, he warned that the mounting arrear debt of municipalities to Eskom, which now exceeds R100 billion, may negate all the good results achieved by the debt relief package.
Source: Eskom
To address the municipal debt problem, National Treasury earlier launched a debt relief programme that would see the arrear debt of compliant municipalities written off over a period of three years.
According to an update on the progress of this programme in the Budget Review, many of the 71 municipalities participating in the programme fail to adhere to its conditions.
“Key issues include persistent non-payment of monthly electricity accounts and an inability to collect the mandated 85% of revenue.
“Forty-seven municipalities have consistently defaulted and already accumulated substantial arrears after receiving debt relief,” National Treasury states.
Several of these defaulting municipalities have now received termination notices, including Mangaung Metro, Richtersveld, and Inxuba Yethemba based in Cradock in the Eastern Cape.
“Termination from the programme will require municipalities to repay their debt and accumulated arrears in full while facing credit control measures from Eskom, such as legal proceedings and the introduction of prepaid bulk electricity systems,” National Treasury says.
Eleven municipalities have, however, succeeded in having a third of their arrear debt to Eskom written off by complying with the conditions of the programme, according to National Treasury.
ALSO READ: Eskom given hands-on role to manage R95.4bn debt owed by municipalities
Eskom knows it must limit its borrowings going forward and has pencilled in a debt ceiling of R250 billion.
Source: Eskom
However, it added that generating sufficient operating cash flows to fund most of its capital expenditure requirements without further leveraging the balance sheet is “highly dependent on achieving an adequate tariff path, resolving the municipal arrear debt challenge and achieving cost efficiencies”.
While the municipal arrear debt problem persists, Eskom is also faced with a tariff determination for the next three financial years that is much lower than it applied for. It wanted 36% more for the coming financial year, followed by almost 12% in 2026/27 and 9% in 2027/28.
Energy regulator Nersa, however, determined that it may only increase tariffs by 12.7% for 2025/26, followed by 5.36% and 6.19% for the two subsequent years.
Whether it will be able to achieve cost efficiencies and, if so, how much that will assist, absent the other two dependencies (tariffs and municipal debt), remains to be seen.
This article was republished from Moneyweb. Read the original here.
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