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South Africa’s government will take over up to two-thirds of the $22bn debt racked up by the state electricity monopoly Eskom, as it battles to overcome the country’s rolling energy blackouts
In a budget update on Wednesday, finance minister Enoch Godongwana said the debt transfer would “ensure Eskom’s long-term financial viability” after years of state cash injections that have failed to turn round the utility’s collapsing power plants that generate nearly all South Africa’s electricity.
Details of the move need to be thrashed out by South Africa’s full-year budget early next year but “the quantum is expected to be between one-third and two-thirds of Eskom’s current debt”, Godongwana said.
South Africa’s economy has been hit by the power outages, which can last up to 10 hours a day in some areas as Eskom’s ageing coal plants break down without warning.
President Cyril Ramaphosa’s African National Congress has been slow to approve alternative private sources of supply despite the energy crisis.
Eskom has already received about R140bn ($7.8bn) in cash bailouts under a R230bn programme that was announced in 2019, and the utility’s debts are backed by more than R300bn of state guarantees.
However, the state’s move to take over billions of dollars of Eskom’s debt is seen as a turning point as it could free up funds for the utility to spend on power-plant maintenance and completing new power stations.
But the debt transfer could complicate recent improvement in South Africa’s public finances. Tax revenues have benefited from surging prices for commodity exports this year, such as coal being shipped to help Europe’s energy crisis and replace Russian supply that is under sanctions.
Despite higher borrowing costs as global interest rates rise, South Africa’s debts will peak at just over 71 per cent of gross domestic product this year, two years earlier than planned, and the budget will move into surplus by 2024, according to South African treasury forecasts released on Wednesday.
However these projections do not yet fully factor in the Eskom plan. The treasury is also under pressure to bail out other failing public assets such as Transnet, the state logistics operator that is struggling to keep container ports and freight railways open.
Amid the fallout from Russia’s war in Ukraine and slowing growth in China, “small open economies like ours need to be especially careful and have solid fiscal buffers in place to weather the coming storm”, Godongwana said.
South Africa’s treasury will set conditions on the Eskom debt transfer, such as an independent review of the problems with its power plants.
But the main opposition Democratic Alliance has rejected any government takeover of the debt, instead favouring privatisation of the utility.
“There has been much talk regarding solutions for South Africa’s electricity crisis, yet after 15 years of living under scarce energy supply, not enough has been done,” the party said in a shadow budget this week.