Eskom, South Africa’s state-owned power utility, has been facing significant financial challenges in recent years due to a range of factors such as poor management, corruption, and lack of investment in infrastructure. As a result, Eskom has accumulated a massive debt burden, which has been a major obstacle to its operations and its ability to provide reliable electricity to the country.
In an effort to address Eskom’s debt crisis and provide some relief to the struggling utility, the South African government has announced a three-year, R254bn debt relief package. This package was tabled by the country’s finance minister, Enoch Godongwana, in his 2023 budget speech in February. The debt relief package aims to cover Eskom’s capital requirements for up to five years, allowing the company’s management to focus on operations rather than raising funds.
Eskom’s acting CEO, Calib Cassim, told parliament’s standing committee on appropriations that this debt relief package would be a significant boost for the company. He stated that this would be the first time in the past six years that Eskom will be able to release three years’ worth of capital expenditure in generation, transmission, and distribution after approving a corporate plan. The debt relief, along with the tariffs, will allow Eskom to cover its capital requirements for the next five years without borrowing.
The debt relief package will also provide Eskom with some much-needed breathing room to focus on generation and alleviate load-shedding, which has been severe this year, with power cuts reaching stage 6. Eskom’s interim CFO, Martin Buys, noted that the support package would free up cash at Eskom, allowing it to undertake immediate and much-needed maintenance and investment programmes required to reduce load-shedding and strengthen the networks. This, in turn, would help ensure the long-term stability and security of electricity supply in the country.
Under the debt relief package, the National Treasury will cover all debt servicing, principal, and interest over the next three years, effectively taking over the entirety of Eskom’s debt service for this period. This will allow Eskom to focus on its operations without being burdened by debt service costs. The conditions around the debt relief should also reassure stakeholders that Eskom will be prevented from raising further indebtedness without ministerial approval over the debt relief period.
Additionally, the National Treasury has issued a circular to municipalities, informing them that they can write off a portion of their debt if they are able to sustainably honour their repayment plans. This is an effort to reduce Eskom’s debt burden by encouraging municipalities to pay their outstanding debts to the company.