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

Financial Mail - Investors Monthly - - Budget 2017 - 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

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