Eskom’s debt will bite consumers
The power utility, already burdened by a debt of R396-billion, has taken on a R9-billion loan from the World Bank, causing economists to warn of tariff hikes
Increased tariffs and higher taxes could be on the cards as consumers are set to bear the brunt of Eskom’s increasing debt after the World Bank granted the power utility a R9-billion loan. Eskom applied for the loan to finance the shutdown and “greening” of Eskom’s old coal-fired Komati power station in Mpumalanga. Documents, which were approved by the World Bank on 2 October, show that the utility’s application for an extra R9-billion was accepted for the decommissioning project.
Economist Lungile Mashele warned that the financial burdens of the loan will be placed on citizens in a society where unemployment and poverty flourish, while inequality booms.
She added that the loan will affect how Eskom applies for tariff changes from the National Energy Regulator of South Africa (Nersa).
“Nobody is explaining how the loan will be factored into Eskom’s tariff applications over and above. Because, remember that any increase will have to include the operations and primary energy costs.”
She said that because of Eskom’s existing debt, which totals R396-billion, an extra R9-billion will be detrimental to the economy.
A source in the treasury said consumers must brace themselves for increased electricity tariffs over the coming five years and higher taxes that will be used to help pay the utility’s bill.
“The mid-term budget will announce stringent plans for Eskom’s debt. This includes proposed increased interest rates and taxes to cover Eskom’s mounting bill,” the source said.
Earlier this week, the International Monetary Fund (IMF) revised South
Africa’s economic growth downwards. This comes as Eskom’s deterioration has been a drag on the economy and the public purse.
“The downgrade comes at a time before the minister’s mid-term budget update on the economy, and part of that update is meant to outline how the country helps Eskom with its mounting debt. Eskom is partly the reason the economy is not growing; the instability in the utility makes investments a challenge,” the treasury insider said.
He added that the loan from the World Bank will come with its own problems because it is more debt that the power utility cannot afford.
This is not Eskom’s first loan from the World Bank. In April 2010, the utility borrowed about R27.5-billion from the bank for the building of the Medupi power station.
In its application, it cited that the loan would foster the transition to clean and renewable energy. The World Bank approved the application and Eskom has been struggling to pay it off.
Defending the R9-billion loan application, Eskom said the utility’s just energy transition focus “is to progress a just transition, in a phased manner, towards a cleaner and greener energy future, in a manner that promotes and supports socioeconomic growth and job creation”.
It added that the utility was currently in discussions with various funders regarding viable sources that can support the implementation of the just energy transition plan. “Developments from these discussions will be communicated as they firm up and are concluded,” Eskom said.
The utility is hoping to create new opportunities for workers at the Komati power station and to replace some of the lost megawatts with renewable power generation projects.
The repurposing of Komati with 70 megawatts of wind and 150MW of solar photovoltaics will produce 492 gigawatt hours of energy annually.
Eskom’s documents approved by the World Bank to finance Eskom’s application for 370MW of renewables technologies will be installed at an estimated cost of R6.5-billion.
The documents show that the money will be used for three packages, which include decommissioning certain parts of the 1000MW Komati power plant, which is currently using only one unit to dispatch 125MW of power when needed — and as Eskom battles its worst phase of power cuts since they started in about 2008.
The World Bank’s Komati project loan is separate from the $8.5-billion (about R155.45-billion) that has been committed by the just energy transition partnership comprising the United Kingdom, United States, Germany, France and the European Union.
It comes as the country finalises its climate investment plan, which is due to be announced at the United Nations climate change conference, COP27, in Egypt in November.
On Tuesday, the IMF revised its outlook for South Africa’s economic growth, lowering its 2022 forecast to 2.1% from 2.3% in July and to 1.1% for 2023 from 1.4% previously.
Last year the IMF blamed Eskom and its debt for the low outlook on the country’s public finances and credit rating.
In its most recent price determination application to Nersa, Eskom asked for a 32% tariff hike to cover emerging costs, including part of the loans and maintenance costs, as well as the regeneration of power.
The power utility said that depreciation caused by an incorrect asset valuation by the energy regulator, increases in diesel and fuel oil prices, and the cost implications of independent power producers contribute to its 32% application.
The last tariff increase granted to the power utility was 9.61% for the year 2022.
The Energy Intensive User Group of Southern Africa urged Nersa to consider the effect on households before approving new methodologies to determine how Eskom can increase its tariffs, which will affect how municipalities charge customers.
“Citizens will have to pay for the extreme prices; it is not fair that citizens pay for Eskom’s failure,” the group said in a statement.
Finance Minister Enoch Godongwana will table the Mediumterm Budget Policy Statement in parliament on 26 October.
He will outline how much of Eskom’s debt the treasury will pay for.
The source in the treasury said the minister will also provide plan to transfer Eskom’s unsustainable debt to the government’s balance sheet, to give the company a break.
“The treasury plans to increase the size of its weekly bond auctions to fund Eskom’s bailouts and an expected shortfall in tax collections. Treasury is finalising a plan to take over a portion of the utility’s debt … which means also lowering the utility’s bond yields,” the treasury source said.
At an inter-ministerial energy briefing in August, Gondongwana said Eskom’s debt is unsustainable.
“Being unsustainable, we’ve got to find a way to step in as the fiscus,” he said, adding that the debt puts the government at risk, and so the government must step in.
In response to questions, the treasury said that it “will publish more information on Eskom and the debt relief project in the 2023 Medium-term Budget Policy Statement.” It added that it will also include details about South Africa’s debt management strategy.
‘The mid-term budget will announce stringent plans for Eskom’s debt and
[how to] cover Eskom’s mounting bill’