Eskom will need another bailout from taxpayers in the next three to four years if there is no reform to the current electricity tariff structure.
This is feedback from former Eskom CEO Andre de Ruyter, who told the Business Day Spotlight podcast that without tariff reform, the utility’s revenue will not cover the cost of electricity generation.
In his 2023 Budget Speech, Finance Minister Enoch Godongwana outlined the government’s plan to take over R254 billion of Eskom’s debt.
Eskom’s debt reached R442.7 billion at the end of September 2023.
Godongwana said Eskom “will not need further borrowing during the relief period”.
This bailout comes with strict conditions.
- Eskom must prioritise capital expenditure in transmission and distribution.
- Eskom must focus on the maintenance of its existing generation fleet to increase the energy available.
- The relief is only to be used to settle debt and interest payments.
- Eskom must implement the recommendations from an independent assessment of its operations, which the Treasury has commissioned.
Speaking to the Business Day Spotlight podcast, De Ruyter said the bailout was insufficient to turn around the utility but that it was the right thing to do and that National Treasury was prudent in applying strict conditions to the deal.
“You cannot continue to indefinitely hose out money at Eskom without getting some quid pro quo attached to it. Throwing more and more money at the problem without trying to fix it decisively is not a prudent way forward,” De Ruyter said.
He said he would have added one more condition to the bailout – Eskom must get cost-reflective tariffs from Nersa.
“If we do not get them, Eskom does not get cost-reflective tariffs, then in three to four years, the entity will be back at Treasury’s door with a begging bowl, asking for more, because its costs will be higher than its revenues,” De Rutyer said.
Eskom has increased the price of electricity by 446% since load-shedding began in 2008, driving up inflation and significantly increasing the cost of doing business in the country.
South Africa’s energy system faces a dual crisis of rising costs and declining performance.
Household electrical costs have risen by 60% since 2017, and the recently announced price increases of 18.7% for the 2023/24 financial year will maintain the pressure on consumers.
Between 2007 and 2017, the average Eskom tariff increased by 333%. By 2022, it had increased 450% since 2007, consistently exceeding headline inflation by a substantial margin.
The current electricity pricing regime ties prices to Eskom’s costs, resulting in decades of mismanagement and crisis spending being passed on to consumers.
Eskom’s ballooning costs have been driven primarily by increased financing costs, with the utility’s expenditure growing significantly since 2007 without a corresponding performance improvement and added revenue.