African National Congress (ANC) economic transformation committee head Enoch Godongwana outlined his preference for what he termed a “simple” transfer of R250-billion of Eskom debt to government, rather than pursuing the creation of a special purpose vehicle, partly financed through green concessional funding.
The Eskom Sustainability Task Team, established by President Cyril Ramaphosa to interrogate solutions for the State-owned utility’s unsustainable debt position, has proposed an $11-billion climate transaction to support Eskom, as well as to accelerate a transition to a more decarbonised electricity system in South Africa.
The proposal was even raised in a statement by Ramaphosa handed to United Nations secretary-general António Guterres last month by International Relations Minister Naledi Pandor.
In the statement, Ramaphosa announced that South Africa would be enhancing its Nationally Determined Contribution by the end of 2020 to strengthen its climate mitigation ambition by 2030.
“To this end, a proposed $11-billion Just Transition Transaction is being developed under the auspices of the Eskom Sustainability Task Team. The $11-billion would consist of a blended finance facility and would be the largest climate finance transaction to date, having a significant emissions impact,” Ramaphosa said.
Speaking on Tuesday at an event held to release 27four Investment Managers’ latest survey of transformation in the South African asset management industry, Godongwana said he did not support the creation of a special purpose vehicle to take on Eskom debt. Neither did he support the green transaction in the form currently being proposed by the task team.
“Eskom has debt of R450-billion and it can service R200-billion, so they need to offload R250-billion. My view is that we should put that into the sovereign, instead of complicating the structure.”
The markets, he argued, would understand such a transfer and would also accept the associated “spike” in government’s fiscal ratios, such as debt-to-gross domestic product and the Budget deficit.
Godongwana said that he had addressed five international investors over the past two weeks, and that they had all indicated a preference for a simple arrangement that did not complicate the structure further.
He even questioned whether the task team had remained within its mandate by linking Eskom’s restructuring to the Green Climate Fund, saying: “Their mandate is to look at Eskom, so they should confine their discussion on how to solve Eskom’s debt”.
Nevertheless, he expressed “in principle” support for aligning South Africa’s energy investments such that they could, in future, secure resources from the Green Climate Fund.
“But that issue must not be driven by the private sector and, secondly, it must be linked to the Integrated Resource Plan. So I support the green fund, but not some individuals running around on behalf of government saying they want a green fund for government, when the government itself has to lead that discussion.”
Asked for the ANC’s view on the unbundling of Eskom into three separate businesses of generation, transmission and distribution, Godongwana said the restructuring had become necessary, owing to fundamental changes taking place in the electricity market.
“We no longer have one generator in the country, we have a lot of generators, so the transmission must not be controlled by one of the generators – it’s a market issue and that matter the ANC has agreed to.”
He added that the ANC debate on Eskom was not guided by concepts such as nationalisation or privatisation, but rather by the “balance of evidence” of what would be best for the country.
PRESCRIBED ASSETS: A WORK IN PROGRESS
He also drew a link between the need to fund new electricity investments and the current debate within the ANC over prescribed assets for investment by retirement funds, which he stressed remained a work in progress.
“A number of power stations are going to be decommissioned. The total capacity that is going to be decommissioned from old power stations is 10 000 MW. Now, that has to be replaced if we are going to grow this economy and I can assure you now that those new plants will be funded. If South Africans are not funding, somebody else is going to fund it.”
The prescribed-asset debate within the ANC, he said, was on whether domestic savings could be channelled towards the development of infrastructure assets, including energy, transport, water, health and education assets, as well as other productive assets.
However, he stressed that the ANC was open to receiving ideas from the retirement industry and rejected the prevailing “narrative” of it being an attempt to raid and loot pension funds.
He indicated that the current objective was to firm up a view on the issue so that it could be debated at the November meeting of the ANC national executive committee.
Congress of South African Trade Unions (Cosatu) president Zingiswa Losi said the union supported the prescribed assets policy, arguing that such a policy could help direct investments in a way that supports social upliftment, industrialisation and transformation.
She indicated that Cosatu would not object to pension money being directed the way of unlisted companies and State-owned enterprises, with the proviso that there was improved governance.
Retirement funds, Losi added, should also be directed to support mass industrialisation and labour-intensive outcomes. “We must desist from focusing on funding capital intensive projects, with little job-creation targets.”