The government has proposed cutting Eskom's allocation through the debt relief program by R2 billion, citing the utility's failure to dispose of financial companies. (Getty Images)
The government has proposed cutting Eskom's allocation through the debt relief program by R4 billion, citing the utility's failure to dispose of financial companies.
The Treasury outlined the proposals, which form part of a tougher stance on bailouts for state-owned enterprises, in the Budget tabled by Finance Minister Enoch Godongwana on Wednesday.
These cuts will be included in the debt relief allocations for 2023-24 and 2024-25, initially set at R78 billion and R66 billion respectively, according to the budget document.
Eskom's debt relief terms stipulate that the power utility must dispose of the financial company by March 31 this year.
The move follows Treasury's decision to amend the Eskom Debt Relief Act, which would see the government take over the bulk of the utility's crippling debt. The amendments announced in the medium-term budget policy statement give the finance minister the power to impose interest on debt relief if Eskom fails to comply with the terms of the loan.
When the amendments were announced last November, Treasury Secretary Duncan Peters said they were inspired by the government's new approach to bailing out state-owned enterprises, which comes with tougher conditions.
Given the role that certain state-owned enterprises play in the economy, many of these bailouts are inevitable in order to avoid the risk of governments being drawn in by them.
For example, Eskom's debt prevented it from investing in aging coal-fired power plants, sparking a 15-year energy crisis.
The Treasury recently granted Transnet a guarantee of R47 billion to enable the national ports and rail company to raise funds to service debt and cover operating costs.
According to the Budget document, the government has approved Transnet to use only R14 billion of the guarantee between December 2023 and March 2024 to repay maturing debt.
“This is to ensure that Transnet delivers on the short-term initiatives of the recovery plan and is aligned with the cabinet-approved freight logistics roadmap,” the document says.
“Key areas identified to improve operational performance in the short term include accelerating capital investment in operational equipment such as port cranes, ships and rail vehicles. and focus on allocating funds for the operation of older locomotives.”
Transnet's other conditions require companies to sell non-core assets, reduce their current cost structures and consider alternative financing models for infrastructure and maintenance.
The budget does not make any further allocations to Transnet, which has hit the economy hard in recent years, particularly putting the country's mining jobs at risk.
“We are committed to working with Transnet to do the right thing and ensure Transnet is self-sufficient,” Godongwana said at a media conference ahead of his speech.
The budget document said the bailout of state-owned enterprises was “a key driver of South Africa's increasingly constrained fiscal situation”, noting that Eskom had received more than R240 billion in financial support since 2008.
“Therefore, several reforms have been implemented to reduce these fiscal risks,” notes the document.
“These reforms include improving transparency in guarantees to strengthen oversight and accountability, using guarantee terms to improve operational efficiency, optimizing costs and requiring private sector participation. This includes reducing financial dependence on
A previous version of this article incorrectly stated that Eskom's debt would be reduced by only R2 billion. This article has been corrected to reflect that the proposed reduction is actually R4 billion.