The South African Government has announced that it will give a 69 billion rand ($4.9 billion) cash injection to Eskom over the next three years. Finance Minister Tito Mboweni said in his budget speech that this will help service the utility’s debt and free up cash for operations. Part of the utility’s transmission business will also be sold to private investors, and it will have to drastically reduce costs.
Mboweni said: “Pouring money directly into Eskom in its current form is like pouring water into a sieve. We are setting aside 23 billion rand a year to financially support Eskom during its reconfiguration.”
The South African Treasury estimates that Eskom will need about 150 billion rand of support over 10 years, but the size of actual support beyond that outlined in the budget would depend on tariffs and the country’s economic growth.
Politically, reorganisation of Eskom could be complicated. Labour unions, from which the ruling African National Congress draws a lot of support normally, are concerned about potential job losses from a reorganisation, and national elections on 8 May could cause the ANC to reconsider reorganisation of Eskom in the short term.
Eskom currently has 419 billion rand of debt, and isn’t selling enough power to cover its interest payments and operating costs. Phakamani Hadebe, CEO for Eskom, said that the cash injection was welcome. He said: “It’s in the right direction. It covers about 65-75 per cent of the debt servicing costs, so it releases resources to do maintenance, and we will be in a better state than we are now.”
Eskom also awaits a decision by the National Energy Regulator of South Africa on its application to raise tariffs by more than 15 per cent annually for three years.