South Africa to bail out Eskom without taking on debts

CAPE TOWN: South Africa will give power utility Eskom a total of 69 billion rand ($4.88 billion) but will not take on 100 billion rand of debt as requested by the struggling firm, Finance Minister Tito Mboweni said yesterday.

President Cyril Ramaphosa wants to reform Eskom, which generates 95 percent of South Africa’s electricity but is drowning in 420 billion rand of debt, to lift the economy before an election expected in May. The rand extended losses in response to a budget statement that also forecast wider deficits, rising debt and slower economic growth. Government bond yields gained. In an effort to make Eskom more efficient, Ramaphosa said earlier this month the utility would be split into three separate entities - generation, transmission and distribution. In its 2019 budget, the Treasury said the first step in splitting Eskom would be to transfer a portion of the utility’s assets to a new transmission subsidiary that will invite the participation of strategic equity partners to provide capital and strengthen oversight. Further financial support to Eskom would depend on economic growth, electricity tariffs and the implementation of the company’s strategy, the Treasury said in its 2019 budget statement.

Eskom Chairman Jabu Mabuza last year urged the government to take on 100 billion rand of the utility’s debt, but Mboweni ruled this out. “Pouring money directly into Eskom in its current form is like pouring water into a sieve,” Mboweni said in his budget speech. “I want to make it clear: the national government is not taking on Eskom’s debt.” Eskom subjected South Africa to the worst power cuts in several years last week due to plant-related problems, diesel shortages and planned maintenance. The outages exposed the risks to the South African economy from Eskom’s virtual monopoly and the failure of successive government to take on labor unions and leftists in the ruling African National Congress (ANC) who oppose job cuts. —Reuters