EXPLAINER: Everything you need to know about government’s Eskom bailouts

Finance
Minister Tito Mboweni on Tuesday tabled a Special Appropriations Bill for
Eskom, allocating R26bn for the 2019/20 year and R33bn for the 2020/21 year to
help the power utility meet its financial obligations.

Here’s
what we know so far.

What exactly is happening?

In
addition to the Special Appropriations Bill, Treasury Director General Dondo
Mogajane on Wednesday briefed the select committee on appropriations on the
2019 Appropriation Bill. He also explained the extent of government’s financial
support to Eskom.

The
Appropriations Bill and Special Appropriations Bill are two separate bills.

The
Appropriations Bill provides for a R23bn allocation to Eskom, which Treasury
announced in the 2019 National Budget.

The
National Assembly debated the Appropriations Bill on Tuesday, and it is now
with the National Council of Provinces (NCOP) for consideration.

The
R59bn, allocated to Eskom over the next two years, is over and above
government’s R23bn to the power utility for the current financial year.

Mogajane
said an emergency R17.652bn, authorised to Eskom in April this year to prevent
it defaulting on its debt, was not to be confused with the Special
Appropriations Bill dealing with the R59bn allocated to Eskom. The special
bill’s process in Parliament is separate to that of the 2019 Appropriation Bill,
which Treasury wants passed before July 31, 2019.

In documents made available to
the committee, Treasury explained why the emergency R17.652bn was authorised in
the first place, and how the R59bn additional funding fits in government’s
financial support to the utility.

Where does
the R23bn come from?

The finance minister, in the
National budget for 2019, announced that Eskom would be allocated R23bn over
the medium term (the next three years) to support the reconfiguration of Eskom
into three entities – generations, transmission and distribution.

This allocation was made to
assist the power utility in servicing its debts, and making resources available
for “urgent operational improvements”.

Where does
the R17.652bn come from?

When government allocated Eskom’s
R23bn which was to be disbursed in October 2019, it assumed the utility would
be able to continue raising funding to meet its capital requirements if there
were any shortfalls.

However, Eskom ran into a problem
when the China Development Bank, which was supposed to disburse R7bn by March
2019, could not timeously execute the planned drawdown due to its central bank
exchange control requirements.

As of March 29, 2019, Eskom
experienced cash flow challenges.

Treasury stepped in to avoid a
liquidity crisis. It first engaged with the Corporation for Public Deposits
(CPD) to assist Eskom, but the CPD declined. “Eskom was facing a severe
liquidity crisis,” Mogajane said. Treasury then engaged with Absa Capital,
from which Eskom obtained a bridging facility of R3bn, backed by a government
guarantee.

As the loan was government
guaranteed, failure of Eskom to meet its obligations would lead to consequences
for both the power utility and the fiscus.

Mboweni then stepped in on April
2, 2019 and invoked Section 16 of the Public Finance Management Act,
authorising the payment of R5bn for Eskom to honour obligations that were due.

This Section 16 approval is part
of the R23bn allocation announced in the budget. “The allocation is not
new, it is not in addition to the R23bn. The provisions of Section 16 is to
bring forward the R23bn,” Mogajane said.

According to the PFMA, the
emergency amount to be authorised is limited to 2% of the annual national
budget for that year – which means the maximum amount to be transferred to
Eskom is R17.652bn.

What does Section
16 of the PFMA state?

Section 16 enables the finance
minister to “authorise the use of funds from the National Revenue Fund to
defray expenditure of an exceptional nature which is currently not provided for
and which cannot, without serious prejudice to the public interest, be
postponed to a future Parliamentary appropriation of funds.”

Treasury must notify Parliament
within 14 days of the authorisation, which it did.

How much
of the R17.652bn has been used?

So far government has transferred
R13.5bn of the R17.562bn. The balance (R4.1bn) will be disbursed in accordance
with Eskom’s cash flow requirements.

What
happens to the remaining R5bn?

The remaining balance of the
R23bn government allocated to Eskom is R5bn. This money will be disbursed after
the 2019 Appropriation Bill is passed by Parliament and once the president
assents to it, Mogajane explained. Treasury needs Parliament to pass it before
July 31, 2019 so that government can disburse funds to various departments and
entities as needed.

Why does
Eskom need an extra R59bn?

The maximum amount of money
allowed by Section 16 of the PFMA has been exhausted. The minister cannot use
these powers again in the 2019/2020 financial year.

Treasury is engaging with Eskom’s
treasury to monitor the company’s daily cash flow requirements and its
financial position. If Eskom cannot secure a drawdown for existing funding
resources, it would require additional funding to honour its obligations,
Treasury said.

Mboweni, however, has tabled a Special
Appropriations Bill for Eskom to be allocated R26bn in the 2019/2020 financial
year and R33bn in the following financial year to meet its debt obligations.
This bill follows a separate process in Parliament.

The funds come with conditions.

Does Eskom
have enough money?

Mogajane said that by announcing
the special appropriations bill, it has created certainty for lenders that the
shareholder (government) has committed to the power utility.

Eskom can now be better
positioned to raise funding from the market, if lenders see it has the backing
of its shareholder. For now, it was important that government created certainty
to lenders.

In the meantime, government will
not be rushing to give Eskom more money. Any disbursements will require that
Eskom meets conditions determined by the finance minister.

When will
the Special Appropriations Bbill be passed?

Moganaje said that this is up to
Parliament and its process. The provisions apply to the 2019/2020 and 2020/2021
financial years.

What does
this mean for the fiscus?

In tabling the bill, Mboweni said
it would come with “significant cost” to the fiscus and will affect
SA taxpayers.

So far there is preliminary
indication that tax revenue could be significantly lower than budgeted for in
the 2019 Budget and government might have to increased its borrowing
requirement. Government will have to revise its funding strategy.

Mogajane echoed these views, he
told journalists that government would relook at its funding strategy and
government will call on various stakeholders to determine which expenditure can
be cut without negatively impacting service delivery.

“There are no holy cows on
what is possible,” Mogajane said.