Treasury cracks down on Eskom

The National Treasury will impose stricter conditions on Eskom for taking on R254 billion of its debt, including a condition that the loans offered to the utility will be interest-bearing and not interest-free. 

This was revealed by Finance Minister Enoch Godongwana in the Medium-Term Budget Policy Statement (MTBPS). 

Godongwana initially tabled the Eskom Debt Relief Bill, which outlines a “direct charge against the National Revenue Fund for debt relief for Eskom”.

The total bailout package amounts to R254 billion, separated into two components.

The first amounts to R184 billion and is split into tranches across the next three fiscal years. R78 billion will be transferred in the 2023/24 tax year, R66 billion in 2024/25, and R40 billion in 2025/26.

This is to ensure that South Africa’s debt-to-GDP ratio remains stable and is not massively increased.

The second component comprises of Treasury’s direct takeover of R70 billion of Eskom’s loan portfolio in the 2025/26 tax year.

Godongwana said that 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.
• In the Eskom Debt Relief Bill, the Treasury is required to report on compliance with these conditions to Parliament.

However, in the MTBPS, Godongwana said he would be tabling the Eskom Debt Relief Amendment Bill to make changes to these conditions and the powers he has. 

Godongwana, through the Amendment Bill, will be able to reduce the amount of debt relief provided to Eskom if it does not meet the conditions. However, this reduction is capped at 5% of the amount to be transferred to the Treasury for that financial year. 

Moreover, the loans granted by the Treasury to effectively take on the debt will no longer be interest-free but will be interest-bearing and at a rate determined by Godongwana. 

“These principles and strict conditionalities, greatly enhanced by the amendment, are a key part of how we will deal with Eskom and all other state-owned entities to avoid a repeat of the mistakes in previous bailouts,” Godongwana said. 

As of 30 September 2023, the government has disbursed R16 billion of the R78 billion debt relief for the 2023/24 financial year.

A task team has been established with officials from the National Treasury, the Department of Public Enterprises and Eskom to monitor compliance with the conditions and report quarterly on whether Eskom qualifies for the conversion of the loan to equity.