Finance Minister Tito Mboweni on Tuesday tabled a bill before the National Assembly which would see Eskom benefit from an additional allocation of R59bn over the next three years. He has warned that this additional funding will come at a “significant cost” to the fiscus.
Earlier this year Mboweni announced that Eskom, which has debt approaching R500bn, would be allocated R69bn over the next three years to aid in its restructuring into three entities – generation, distribution and transmission.
The additional R59bn was tabled by Mboweni as the power utility is struggling to meet its debt obligations. According to the bill, R26bn is allocated for the 2019/2020 financial year and R33bn is allocated for the 2020/2021 financial year, and the funding is specifically to be used for Eskom to meet its financial obligations.
Mboweni stressed that Eskom’s business model needs to change and that financial assistance is needed from the government so that it can meet its financial obligations through the 2019/2020 financial year.
In his speech to the National Assembly, Mboweni outlined the full extent of Eskom’s financial woes.
1. Biggest fiscal risk
“Eskom presents the biggest risk to the financial fiscal framework because of its financial difficulties and its negative impact on the lives of ordinary South Africans. Given the high risks of a systemic failure if Eskom were to collapse, government is urgently working on stabilising the utility, while developing a broad strategy for its future.”
2. Governance issues
“Eskom faces serious financial and operational challenges – which to a large extent were caused by the governance challenges which are playing themselves out at the Zondo commission [of inquiry].”
3. High debt levels
“As it stands, Eskom is not financially sustainable based on its current high levels of debt, and its inability to generate sufficient revenue to meet its operational and capital obligations, which exposes the entity to high levels of liquidity and balance sheet risks.”
4. Major interventions needed
“Without major changes to Eskom’s business model and financial assistance provided by government, the company will be unable to meet its financial obligations through the 2019/2020 financial year.”
5. SA taxpayers affected
“We should be reminded that fiscal support announced today will come at a significant cost to the fiscus and to SA taxpayers. In addition to the financial support to Eskom, there is also a preliminary indication that tax revenue could be significantly lower than budgeted for in the 2019 Budget.
“This could substantially increase the government borrowing requirement for 2019/10, which will require government to revise its funding strategy and current weekly bond issuance levels before the MTBPS (Medium-Term Budget Policy Statement) in October.”
6. Outdated model
“At a strategic level, we must [therefore] face the reality that a large, vertically integrated energy company is an outdated model in a changing industry, both domestically and internationally.”
7. Worsening liquidity
“Eskom’s debt is reliant on its liquidity position, and this has worsened.”
8. Going concern status
“Eskom’s funding plan is dependent on Eskom raising additional finance from the market, which in turn requires Eskom to be a going concern.
“The proposed financial support for 2019/20 and 2020/21 financial years addresses the going concern status and enables Eskom to honour its obligations.”
9. Funding alone won’t help
“The future sustainability of Eskom will have to be addressed and its debt levels restructured and sorted.”
10. Chief Restructuring Officer needed
“Minister Pravin Gordhan and myself have been in conversation about the appointment of a Chief Restructuring Officer. Pending finalisation of consultation we should be able to announce that Chief Restructuring Officer later today.”