Treasury cuts Eskom bailout package by R2 billion a year

South Africa’s state power utility will lose a portion of the debt relief it was previously allocated by the National Treasury after it failed to meet the attached conditions.

The government will transfer R76 billion and R64.2 billion in the current and next fiscal year, respectively, to Eskom, according to the Budget Review published by the Treasury in Cape Town on Wednesday.

“Transfers in each of these years are R2 billion lower than projected as a result of the entity’s failure to conclude disposal of the Eskom Finance Company, as stipulated in the debt-relief conditions,” it said.

The decision shows the Treasury is holding a firm line on only providing relief to debt-stricken state companies if they meet strict criteria, including implementing recovery plans and selling non-core assets.

The government granted Eskom a R254 billion debt-relief package last year to help the utility strengthen its financial position and repair and upgrade power plants in order to end daily outages that have crimped economic growth.

The Treasury is working with the International Finance Corp., the World Bank’s private lending arm, on “short-term options for off-balance sheet financing” to accelerate private-sector investment in South Africa’s transmission network “without negatively affecting Eskom’s balance sheet and the fiscus” according to the Budget Review.

A pilot project will be implemented to test market appetite for the plan, with a request for proposals expected by the end of July, it said.

The Treasury made no mention of a report by German consultants Vgbe Energy that made recommendations on how Eskom’s coal-fired power plants can improve on operational inefficiencies.

Godongwana previously said the proposals would be actioned after being considered by the utility, which received the report late last year.

Separately, the Treasury said it’d granted state port and freight rail operator Transnet approval to use only R14 billion in debt guarantee – out of a total R47 billion that it was granted late last year – to pay off maturing loans in the four months through March.

“This is to ensure that Transnet implements the short-term initiatives in the recovery plan and aligns it with the cabinet-approved roadmap for freight logistics,” according to the Budget Review.