Government is set to take over a portion of Eskom’s debt. Image: Pixabay.
Government to bail out SOEs and ‘take over’ Eskom’s R400B debt
For almost a decade government has been bailing out Eskom and it will now take over the power supplier’s debt and bail out other SOEs.
Government is set to take over a portion of Eskom’s debt. Image: Pixabay.
Finance Minister, Enoch Godongwana has blamed poor leadership and corruption as he announced yet another government bailout for State Owned Entities (SOEs), especially Eskom.
Godongwana delivered his Medium-Term Budget Speech Policy on Wednesday, 26 October.
GOVERNMENT TO BAIL OUT SOES ONCE AGAIN
During his speech, Godongwana said government is proposing to use higher-than-anticipated revenues in the current year to reduce risks from specific SOEs.
He said financial support to SOEs recognises their potential to contribute to our long-run growth prospects.
“We are thus tabling a Special Appropriation Bill to provide additional funding to Denel, Transnet and SANRAL. These allocations will allow these entities to adjust their business models and restore their long-term financial viability,” he said.
Godongwana added that fiscal support to SOEs remains a challenging balancing act given the many competing priorities and limited resources.
Funding to SOEs will now come with strict pre- and post-conditions. Pre-conditions mean that SOEs will need to comply with the conditions before they receive government support, not after. Non-compliance to conditions, means no funding.
This is how funding was allocated:
- Transnet was allocated R2.9 billion to ensure the return of out-of-service locomotives. This will be complemented by R2.9 billion from in year spending adjustments to deal with flood damage that affected its operations in eThekwini.
- Denel was allocated R3.4 billion to support recent progress made to stabilise the entity. This allocation will be augmented by R1.8 billion in sale of non-core assets and will unlock a committed order book of R12 billion awaiting execution.
- SANRAL – To resolve the funding impasse for the Gauteng Freeway Improvement Project (e-tolls) Godongwana said the Gauteng provincial government has agreed to contribute 30% to settling SANRAL’s debt and interest obligations, while the national government covers 70%.
Government has reportedly proposed to make an initial allocation of R23.7 billion from the national fiscus which will be disbursed on.
- Eskom – To ensure Eskom’s long-term financial viability, Godongwana said government will take over a significant portion of the utility’s R400 billion debt.
The method of effecting the relief is still to be determined, however government is expected to fork out between one-third and two-thirds of Eskom’s current debt.
Godongwana said once the debt takeover is finalised together with other reforms will ensure that Eskom is financially sustainable.
“The programme will allow Eskom to focus on plant performance and capital investment and ensure that it no longer relies on government bailouts. Importantly, the programme will include strict conditions required of Eskom and other stakeholders before and during the debt transfer,” he said.
These conditions will address Eskom’s structural challenges by managing its costs, addressing municipal and household arrears due to the utility, and providing greater clarity and transparency in tariff pricing.
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