Financial Mail - Investors Monthly

Eskom and Transnet lead the pack

Government extends power utility’s R350bn guarantee by six years — but it will not be used to cover nuclear build. Meanwhile, the state transport company gets R273bn to spend over the next five years

- Sikonathi Mantshants­ha mantshants­has@fm.co.za

Government entities will spend about R433bn on capital goods over the next three years, most of which will be spent on fixed infrastruc­ture by the state’s six largest companies.

This will take total expenditur­e on infrastruc­ture to over R1 trillion since 2012, as these entities have already spent R514.4bn, finance minister Pravin Gordhan said in parliament this week.

Eskom and Transnet are at the forefront of the capital expenditur­e drive, having taken up 74% of the total.

This was spent by Eskom bringing online 1,900 MW of electricit­y-generating capacity and transmissi­on infrastruc­ture, while Transnet’s acquisitio­n of locomotive­s and investment in rail infrastruc­ture added 26.4Mt of capacity for its general freight business.

Another 9Mt was added to the export coal line to the Richards Bay Coal Terminal and the capacity of the iron ore line was boosted by 7.2Mt.

Transnet’s capital expenditur­e amounts to over R122bn over the past five years, including buying 1,064 rail locomotive­s, laying a fuel pipeline and rolling stock.

The utility will spend the money expanding and upgrading its rail infrastruc­ture and rolling stock.

Over the next five years, Transnet will spend another R273bn on capital infrastruc­ture.

In addition to handing Eskom a cash bailout of R23bn and converting a R60bn loan into equity, government has extended the utility’s R350bn guarantee facility by six years.

The guarantee, which Eskom needs to complete the building of the two power stations currently under way, has been extended from next month.

This guarantee is specific to raising money for the current build of coal-fired power stations.

It will not be extended to fund Eskom’s ambitious nuclear electricit­y investment drive.

Late last year, Eskom requested proposals from interested parties to provide informatio­n on what it would cost to build the infrastruc­ture. When the process closed last month, Eskom said it had had overwhelmi­ng interest from major internatio­nal nuclear vendors, and would analyse the informatio­n to determine the way forward.

Eskom wants to build a fleet of power stations eventually amounting to 9,600 MW by the year 2037.

At current estimates it is expected to cost R440bn at the low end and R1.2 trillion at the top end.

Equally, Eskom has stated that its balance sheet cannot fund any expenditur­e of this nature without government support.

This is a significan­t amount, as current government expenditur­e totals R1.56 trillion over the medium term. Asked if the budget makes allowance for nuclear build, Gordhan said no.

“That process (at Eskom) is still in the early stages, and treasury is not yet required to make any provision for it,” he said.

A major surprise in the budget was an allocation of R200bn for the constructi­on of the Mthombo oil refinery that PetroSA wanted to build at Coega in the Eastern Cape.

The fuel supplier quietly abandoned the project two years ago, in the face of depressed oil prices that would have made the 300 000 barrels per day uneconomic­al. It was at the feasibilit­y stage then. Treasury says in the budget review that should this project go ahead, it would require further investment of R100bn in supporting infrastruc­ture to make it work in an area bereft of fuel transporta­tion capacity.

 ??  ?? Majuba power station: Eskom and Transnet are at the forefront of the capital expenditur­e drive
Majuba power station: Eskom and Transnet are at the forefront of the capital expenditur­e drive
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