No immediate Eskom debt solution, as Minister outlines ‘tough love’ stance on SOEs

11th November 2021 By: Terence Creamer - Creamer Media Editor

No immediate Eskom debt solution, as Minister outlines ‘tough love’ stance on SOEs

Photo by: Bloomberg

Finance Minister Enoch Godongwana offered no new insight in his maiden address to lawmakers into how government intended approaching the issue of Eskom’s R400-billion debt burden, which has been labelled unsustainable by the utility, and also refrained from making any new provisions for distressed State-owned enterprises (SOEs).

Instead, he said that he would be adopting a “tough love” stance towards SOEs, albeit with the caveat that government would most likely support those entities regarded as “strategic”, such as Eskom, Transnet and Denel.

Delivering his address to lawmakers against the backdrop of an intensive period of load-shedding by Eskom, Godongwana also made a distinction between saving the utility itself and supporting the electricity supply industry as a whole.

He lamented the focus, over the past 13 years, on “fixing Eskom” rather than ensuring security of supply across the industry.

Additional capacity, beyond what Eskom could supply, was urgently needed, he said, particularly given that 11 000 MW of coal capacity would be decommissioned by 2030.

The resumption of independent power producer procurement was viewed as a positive, but would still leave a gap until 2024, which might be partly closed by the reform allowing 100 MW distributed plants to produce and sell electricity without a licence.

"The amended regulations will further enable municipalities to self-generate or procure power directly from independent power producers."

The Minister added that South Africa had also begun to reduce its reliance on Eskom by diversifying its primary energy sources, notably through the Renewable Energy Independent Power Producer Procurement Programme.

"The 25 projects that are part of the latest round of Bid Window 5, will generate more than 2 500 MW of power at a weighted average price of 47.3c/kWhr. This is the cheapest rate achieved in the history of the programme and is among the lowest rates achieved worldwide."

Work was, nevertheless, under way to address Eskom’s debt, but no solution had yet been found.

The utility had been allocated R230-billion over a ten-year period to enable it to avoid default, of which R132-billion had already been injected by the National Treasury.

Godongwana indicated that his tough love approach also did not preclude support for other SOEs, with Denel set to receive a R2.9-billion injection as part of an in-year spending adjustment to settle repayments that were falling due.

Government extended a R5.9-billion guaranteed debt facility to the State armaments manufacturer in 2020/21, and the new allocation arose as a result of that guarantee being called.

However, Godongwana did not discount the possibility of refusing help to less "strategic” SOEs, some of which could close as a consequence.

"Going forward, the restructuring of State-owned companies, informed by an assessment of their strategic relevance, is a priority," the Minister said.

"We must be prepared to consolidate some of our State-owned entities and let go of those that are no longer considered strategically relevant."

The National Treasury argued that its strict enforcement of minimum criteria before guaranteeing SOE debt had led to a decline in bailout requests, yet it conceded that the risk of bailouts remained.