Treasury tells Eskom to Fix Power Stations with Money from Tariffs

The National Treasury held a briefing on Tuesday, speaking to MPs about the Eskom Debt Relief Bill. One of the key takeaways from the briefing is that Eskom may not borrow for three years and will not receive any other financial support from the government to fix its troubled power stations. This means that from 1 April, Eskom must fund all their existing plant expenditures from the tariffs raised from customers.

Deputy director-general Duncan Pieterse responded to Parliament’s Standing Committee on Appropriations, stating that the real issue with Eskom is the associated liquidity and solvency challenges from its debt of over R420 billion. Eskom hasn’t been able to spend the necessary funds on maintenance, capital expenditure, or investment in transmission and distribution. The aim is to free Eskom from the debt burden so that it can prioritize that critical Capital Expenditure (CapEx) and resolve load shedding.

The Eskom Debt Relief Bill is aimed at covering capital and interest payments due in 2023/24 amounting to R78 billion, with future funding of R66 billion and R40 billion for 2024/25 and 2025/26, respectively. The advances will be dedicated to the capital and interest payments and may not be used for any other purposes. In addition, a debt take-over by the government of R70 billion of Eskom’s loan portfolio has been proposed for 2025/26. The bill must be passed before the money can be given to Eskom.

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Furthermore, the conditions of the Eskom Debt Relief Bill will impact various aspects of Eskom’s operations, including restriction of capital expenditure to existing generational fleet investments and infrastructure for transmission and distribution. The company may not use the proceeds from the sale of non-core assets for capital and operating needs. Instead, all proceeds from the sale of non-core assets, including proceeds from any property and Eskom Finance Corporation sales, must be used for the debt relief arrangement. Eskom may not develop any new borrowing until the end of the debt-relief period, unless written permission is granted by the Finance Minister. Eskom will also not be allowed to implement salary and wage increases that affect its overall financial position and sustainability.

The debt-relief guarantees amounting to R350-billion will be reduced in line with National Treasury recommendations. Eskom’s derivative contracts (swaps/hedges) cannot be used to structure new debt or loan agreements without the approval of the National Treasury. Furthermore, the debt relief can only be used to settle debt and interest payments.

It is worth noting that Eskom is prohibited from obtaining additional financial support from the government or anyone else during the relief period. Eskom will be closely monitored to ensure that it meets the loan conditions, giving the government room to invest in other critical aspects of the country’s development.

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In conclusion, the Eskom Debt Relief Bill seeks to ensure that Eskom funds all their expenses through the tariff raised from customers. This will enable the company to free itself from its enormous debt burden so that it can prioritize critical CapEx and ultimately improve energy supply. However, Eskom must adhere to several conditions while receiving the debt-relief loan. By reporting to Parliament regularly, Eskom will remain accountable throughout the process.