The reform-related conditions outlined by the National Treasury as part of a R254-billion Eskom debt-relief package over the next three years – including the concessioning of coal power stations to the private sector and allowing for private sector participation in the building and operation of grid infrastructure – “make sense” and are necessary both in the context of the just energy transition and revelations of embedded corruption within Eskom’s coal supply-chain.

This is the conclusion arrived at by a team of economists at the University of the Witwatersrand’s Public Economy Project, who have published an analysis and commentary on the 2023 Budget.

However, Rashaad Amra, Thokozile Madonko, Michael Sachs and Owen Willcox also warn that the conditions are likely to prove controversial, as it is “by no means clear that the rest of government is behind the National Treasury’s vision of a market-based electricity supply industry, with extensive private participation in transmission as well as generation”.

“Over the next three years, Eskom will undergo a complex and contested set of structural reforms, splitting it into three separate operations; this process of fundamental change is laden with risks and uncertainties.

“Given these uncertainties, Eskom may well remain permanently dependent on fiscal subsidies beyond the three-year horizon currently anticipated by National Treasury,” the economists caution.

Success, they argue, also depends on a strong security intervention and on a transition to cost-reflective tariffs.

Here, too, there are lingering concerns, owing to uncertainty over the State’s capacity to disrupt criminality, especially where politicians are directly implicated, and opposition to the recent tariff hikes, with President Cyril Ramaphosa having personally cast doubt on the regulatory process.

Nevertheless, the analysis concludes that the relief package could be sufficient in scale to overcome Eskom’s bankruptcy and in creating a strong financial platform to address loadshedding.

“The economics of the plan are sound, as electricity is a binding constraint on growth.”

The economists are more dubious, however, about the debt and deficit projections provided in the Budget, arguing that a change in accounting practice “wrongly excludes Eskom bailouts from spending and the deficit”.

“Once these factors are accounted for, the expectation of an improved fiscal outlook is more apparent than real.

“Debt is unlikely to stabilise over the medium term.”

The accounting changes associated with the Eskom support plan, which also have implications for other State-owned companies (SOCs), are described as “problematic”.

“Until now, cash support for SOCs was defined as ‘payment for financial assets’ and reported as part of non-interest expenditure.

“Budget 2023 changes this practice and classifies cash payments to Eskom as a debt redemption, not an expenditure item.

“In our view, this departs from good government accounting practices and results in a better looking but wrong deficit number.”

If used exclusively to redeem Eskom debt, the economists agree that cash transfers will not increase the stock of debt held by the whole public sector. But excluding these payments from the main budget balance “does not make sense”.

The accounting change introduced along with the Eskom debt relief, they assert, has opened the door for future cash payments to failing SOCs being similarly recategorised “to obscure the fact that these payments added to government’s borrowing requirement”.

“In other words, the reliability and authoritativeness of the official Budget documentation has now been opened to question.”