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South Africa to ramp up financial support to Eskom
SOUTH AFRICA
THE South African government is planning to step up its nancial support for state-owned power utility Eskom Holdings in a bid to help the ailing company reverse its fortunes. The government is proposing to infuse an additional ZAR59bn ($4.2bn) into Eskom over the next two years, with ZAR26bn ($1.87bn) allocated for this nancial year and ZAR33bn ($2.37bn) in 2020-21.
The move comes only five months after South African Finance Minister Tito Mboweni announced a ZAR69bn ($5bn) cash injection into the company. However, Eskom’s current performance is seen as the biggest threat to the country’s economy, so an increasing sense of urgency can be seen in the latest ramp-up in nancial support.
Mboweni introduced a bill to South Africa’s parliament on July 23 to pave the way for the new funds to be transferred to Eskom over the next two years. He did not announce the con- ditions the government is planning to attach to the proposed bailout, which Eskom may have to meet before it can receive the money. He warned, however, that without the cash injection, the util- ity would not survive the year.
“As it stands, Eskom is not nancially sus- tainable based on the high level of debt and its inability to generate su cient revenue to meet its operational obligations,” Mboweni said. “We must thus face the reality that a large vertically integrated energy company is an outdated model
in a changing industry both domestically and internationally.”
Mboweni also warned that the government might have to increase its borrowing require- ment substantially for 2019-20 given how much it will allocate to Eskom, as well as the possibility of signi cantly lower tax revenue. e govern- ment may have to change its funding strategy and its current weekly bond issuance to levels beyond what it previously planned, he said, and it may have to do so before the Treasury tables the medium-term budget policy statement in October.
“We are facing a very serious nancial situa- tion,” he told Parliament.
Intellidex’s head of capital markets research, Peter Attard Montalto, said: “ ere is a disap- pointing lack of further detail [in the bill] on what the money will be used for or how it will be funded.” He was cited by Bloomberg as saying that while the bill does impose conditionality, it fails to indicate on what grounds.
Eskom, which provides about 95% of South Africa’s power, is struggling to pay down over ZAR440bn ($32bn) of debt and anticipates reporting another annual loss this month. is can be attributed to low demand and unreliable generation from ageing coal- red plants, which resulted in power outages in the rst quarter of the year. Pretoria has vowed to help the company, as its nancial situation has worsened in recent years.
Eskom, which provides about 95% of South Africa’s power, is struggling to pay down over ZAR440bn ($32bn) of debt.
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w w w . N E W S B A S E . c o m Week 29 24•July•2019
