During the 2022 Medium Term Budget Policy Statement (MTBPS), National Treasury announced that the government will take over a portion of Eskom’s debt. Finance Minister Enoch Godongwana said that this was primarily for two reasons: Firstly, to ease pressure on the company’s balance sheet, enabling it to invest in transmission and distribution infrastructure.
He said that this it will also allow Eskom to conduct the maintenance required to improve the availability of electricity. Secondly, Godongwana relayed how R337 billion of Eskom’s debt is already government guaranteed. “Explicitly taking on this debt, will reduce fiscal risk and enhance long term fiscal sustainability.”
National Treasury is currently proposing a total debt-relief arrangement for Eskom of R254 billion. This consists of two components. One is R184 billion, which represents Eskom’s full debt settlement requirement in three tranches over the medium term. The second is a direct take-over of up to R70 billion of Eskom’s loan portfolio in 2025/26.
Conditions of the arrangement
Requires Eskom to prioritise capital expenditure in transmission and distribution during the debt-relief period
Eskom must focus on maintenance of the existing generation fleet to improve availability of electricity
The debt relief must be used to settle debt and interest payments only
Eskom must implement the recommendations emanating from an independent assessment of its operations, which has been commissioned by National Treasury
Nevertheless, the conditions are a little disappointing as one would have expected there to be certain targets to be met before payments are made.
“The mentioned conditions are not inadequate.”
On the Eskom debt takeover and debt ratio
Els says the plan to phase the Eskom debt takeover seems credible and comes at the right time. “Despite the Eskom debt transfer, the debt ratio still substantially improved from the levels recorded in October 2020.” But, he cautions that we are not out of the woods yet. “There is a long, hard road ahead before we reach a situation where we could be rated as investment grade by ratings agencies.”
Els’s general budget scorecard
| Did Treasury deliver relative to expectations? | Yes, mostly |
| Continued Fiscal consolidation? | Yes |
| Eskom debt relief? | Yes |
| Credible economic assumptions? | Yes |
| Credible revenue assumptions? | Yes |
| Tax incentives for self-generation of renewable energy? | Yes |
| Credible expenditure assumptions? | Not |
The markets will like that there is emphasis on fiscal consolidation, a primary surplus, the Eskom debt deal, tax giveaways for consumers, incentives for renewable energy, and no fuel levy increase, according to Els, while they will be concerned about the small increase in the wage bill budget (only +1.6%).
He says some analysts might view the first part of the Eskom debt support (support for capital and interest payments) as expenditure – and that this should have lifted the deficit.
“National Treasury is adamant that this is a balance sheet transaction and thus a move of debt from Eskom to the sovereign. This might be a grey area that could have some initial concern, but I do not think this is a serious concern.”
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