Analysts question whether Eskom’s debt will ever be paid off

Rather than the usual bailouts, National Treasury’s debt relief arrangement of Eskom’s R254 billion debt will be given to it as a loan. But the question remains if it will ever be paid off.

Duncan Pieterse, Treasury’s head of asset and liability management, yesterday presented its 2023 Eskom Debt Relief Bill in an effort to address the utility’s unsustainable R423 billion debt burden.

This was an optimally designed debt solution, with conditions leveraged to support the structural reform of the electricity sector, which would enhance SA’s long-term growth prospects, he said.

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“The goal is to strengthen the utility’s balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support the security of electricity supply,” he said.

In the Budget Review 2023, Minister of Finance Enoch Godongwana announced a debt relief arrangement of R254 billion – about R168 billion in capital and R86 billion in interest – over the next three years.

Eskom debt relief arrangement

Pieterse said this was a balance sheet transaction and not a spending appropriation. According to Pieterse, the Bill was proposed to give effect to the debt relief arrangement and proposed a loan to Eskom of R78 billion in 2023-24, R66 billion in 2024-25 and R40 billion in 2025-26.

He said these amounts were equivalent to Eskom’s capital and interest requirements in each of the three years and equated to Eskom’s entire debt requirement, where advances would cover capital and interest payments as they reached due dates for payment and only used for that purpose.

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“Over and above the three amounts, for 2025-26 the Bill proposes a debt takeover by government of R70 billion of Eskom’s loan portfolio.”

Pieterse said the funds would be given when Eskom’s debt settlement – interest and redemptions – were due.

“The proposed advance of funds will take the form of an interest-free subordinated loan, to be settled in Eskom shares rather than cash, allowing Eskom to better manage its liquidity position.”

‘Mostly capital’

Chief economist at Efficient Group Dawie Roodt said it was important to understand the amounts the state was supposed to take over was mostly capital.

“So that is sort of a debt takeover, but the total amount of money that the state is going to pay on behalf of Eskom according to the budgets is R254 billion. So there’s a difference there of around R100 billion and as far as I understand, it’s mostly interest,” he said.

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Roodt said taking over debt and swapping it with debt was all good and well because the state guaranteed most of that debt – but taking over the interest component was different because that was a current expense which was supposed to be added to the fiscal deficit.

“So, the minister said in the current financial year, the fiscal deficit would be 4.5% to gross domestic product (GDP), which is incorrect because you have to add at least the interest to the fiscal deficit over this year, the next and the year thereafter,” he said.

In terms of being able to pay this debt off, Roodt said this was a matter of a financial deficit which was not around 4.5% but in actual fact about 6% or even more, relative to GDP.

“That means the debt to GDP ratio is likely to go up in the current financial year and the year thereafter,” he said.

“If we don’t stop spending money, SA is going to get into serious trouble. We need to cut back on state spending. But there’s an election around the corner and politicians do not like to do that just before an election.”

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The ANC’s Oscar Mathafa said the new loan was a “breath of fresh air” as it deviated positively from the conventional bailouts.

“This is where money is just poured into state-owned entities with no accountability and no clear plans on how funds will be used,” Mathafa said.

– lungas@citizen.co.za