Analysis

The Never-Ending Story Of Eskom Bailouts

Finance Minister Tito Mboweni asked Parliament on Tuesday to approve an additional R59-billion for Eskom to 2021. That’s in addition to the R23-billion a year already allocated in February’s Budget. Because Eskom with its R450-billion debt can sink South Africa’s economy, it effectively has the country by the short and curlies.

The 38-line Special Appropriation Bill introduced in the House on Tuesday plainly states R26-billion would be appropriated to Public Enterprises for transfer to Eskom in the current 2019/20 financial year, and R33-billion for the 2020/21 financial year. Together with the R23-billion already allocated for Eskom in February’s Budget, if Parliament approves the draft law, Eskom would get a total of R49-billion this year – and a total of R56-billion in the next financial year.

These additional allocations come against a strained public purse where departments across the board had to make cuts – R50.3-billion worth, according to the Budget – to try to keep the debt to gross domestic product (GDP) below 60% that, while not on its own consideration, remains an important indicator for economic stability. And debt repayments reached R202.2-billion in the current financial year to claim the dubious status of being the fastest-growing Budget item.

As Finance Minister Tito Mboweni told MPs on Tuesday when he introduced the bill: “We are facing a very serious financial situation”.

Earlier he gave a clear signal October’s Medium-Term Budget Policy Statement (MTBS) would not hold good news. “Fiscal support (to Eskom) will come at a significant cost to the fiscus and the South African tax payers,” said Mboweni, adding tax collection is anticipated to come in lower than estimated. “This could substantially increase the government borrowing requirements, which will require government to revise its funding strategy…”

Government’s quandary over Eskom is found in an almost throwaway line in Mboweni’s brief, but direct, statement in the House. “Eskom’s funding plan is dependent on raising additional funds from the markets, which requires them to be a going concern. This extra funding (through the special appropriation Bill) addresses going concern status.”

Or as Mboweni also put it: “Without our support, the company (Eskom) will be unable to meet its financial obligations.

This effectively is official confirmation of what analysts and others have long argued – Eskom is not a going concern, effectively bankrupt, and this is why the release of its financial statements has now been twice postponed. Without going concern status, no auditor would sign off on financial statements.

“National Treasury has tried to calculate the funding gap based on limited market access and fill it for this year and next year with the publication of the bill in order to get sign off on going concerns from the auditor into next Tuesday’s Eskom results,” said Intellidex analyst Peter Attard Montalto, adding that cash was cash.

But he raised concern that although the markets would absorb the backstop, there was a “the gaping credibility hole” as this bail-out came without conditions while “energy market reform is stalled or even going backwards with a refocus on coal and nuclear”.

It’s complicated. Municipalities and government departments owe some R30-billion to Eskom. Independent power projects have been slated by trade unions and others. And the political pressure is on from various quarters over the proposed unbundling into three entities – transmission, distribution and generation – that has effectively stalled since first being announced by President Cyril Ramaphosa in his February State of the Nation Address.

If Eskom defaulted on its R450-billion debt – R350-billion of which are government guarantees – it would trigger demands for the immediate repayment not only of that debt, but also potentially lead to a complex cross-call in of other government-guaranteed debt to SOEs like SAA, the South African National Roads Agency (Sanral) and Denel.

That kind of money simply isn’t there. And so in no small means also to buy time, the focus remains on bailouts for Eskom.

In February’s Budget Eskom got R23-billion for the current financial year, and the next two years. That was what was said in public. On the sidelines it emerged that, actually, the R23-billion a year had been pencilled in for every year over the next decade, amounting to an amortised R150-billion. At the time this was what Eskom thought it needed.

As it turned out, the State-owned Entity (SOE) that’s been described as the biggest and greatest risk to the South African economy, didn’t manage its finances. In late March South Africa was pushed to the edge of economic ruin– and Mboweni had to invoke the emergency measures of the Public Finance Management Act (PFMA) when Eskom couldn’t meet its obligations when an anticipated R7-billion tranche of a much bigger loan from the Chinese Development Bank didn’t materialise amid concerns by the bank over, among other, Eskom’s planning.

At a briefing on the Public Enterprises Budget vote earlier in July it emerged Eskom board Chairperson Jabu Mabuza had travelled to China to meet the bank. He confirmed all concerns had been dealt with, and no further delays in future disbursements of the total R30-billion facility were expected.

The impact of releasing R17.6-billion under the emergency PFMA provisions against the R23-billion is that it represents the whole the legally permissible 2% of the National Revenue Fund. Or to put it differently: there is no emergency money available any more should there be any other crisis or disaster in this financial year.

The 38-line Special Appropriation Bill for Eskom that in Parliament’s new printing layout goes just beyond one page, plainly states that conditions may be imposed before the money is actually transferred to Eskom, and that transfers may be stopped if Eskom fails to meet the conditions, but actually doesn’t state any conditions. So unless that is changed in the parliamentary process, Eskom may well blank cheque. The money comes at a time when Eskom sees a revolving door of top managers: CEO Phakamani Hadebe leaves at the end of July as group Treasurer Andre Pillay has handed in his resignation.

Neither is the broader policy context outlined in the absence of the much talked about explanatory memorandum that was meant to accompany this special appropriation draft law. This could signal tough and on-going behind-the-scenes contestation between National Treasury and Public Enterprises.

The Special Appropriation Bill now goes to Parliament’s appropriation committee for processing, including a public comment period. In 2015, when government sold its Vodacom shares to raise R23-billion for Eskom, it took about a month to pass that special appropriation law. In 2019 it may take a little longer, given that Parliament goes into a three-week recess for constituency work until 20 August.

But the pressure is on – all round. 

By: Marianne Merten