Plans to restructure Eskom will be implemented by mid-2019, with a separate transmission company with its own board operational by that time, finance minister Tito Mboweni revealed on Wednesday afternoon.
Budget highlight: Eskom funding of R23bn a year for next 3 years, funded by reducing government wage bill. Doesn’t appear to mitigate the risks. Budget deficit also up to 4.5% of GDP from 4.3%. Growth outlook to 2021 modest (2.1%), well behind global growth. But we knew that.— David Shapiro (@davidshapiro61) February 20, 2019
President Cyril Ramaphosa announced plans to split the embattled power utility into three separate entities during his State of the Nation (SONA) address at the beginning of February.
He described Eskom - with ballooning debt of over R420 billion - as one of the biggest threats to South Africa’s economic recovery.
During his budget speech, Mboweni said the national treasury will not bail out Eskom, but will set aside R23 billion a year for the next three years to support the entity during its reconfiguration. The money will be used to pay interests on debts.
He said the financial support is conditional on the appointment of an independent Chief Reorganisation Officer (CRO) with the explicit mandate to implement Eskom’s restructuring.
“Pouring money directly into Eskom in its current form is like pouring water into a sieve,” Mboweni said.
Additional announcements about Eskom’s restructuring will be made in the weeks ahead, he said.
The national treasury described the corporate restructuring and turnaround of Eskom as “unprecedented” in the history of South Africa in budget documents.
A split Eskom will allow lenders to separately fund components of the business which will allow debt to be priced more tightly as it reflects each business’ risks more accurately, Treasury said in budget documents.
It will further open up Eskom to allow more private companies to contribute to the state’s generating capabilities, but Mboweni ensured that the three new units of Eskom itself will not be privatised.
The reconfiguration of Eskom will be a vast undertaking, with all existing Eskom transmission assets (including the grid, substations and associated infrastructure, the national control centre, and peaker power stations such as hydro and gas turbines) to be transferred to the new company.
Eskom’s current transmission licence will have to migrate to the new company, and be amended to allow for the buying and selling of electricity.
Existing supply agreements will also have to be migrated, and new supply companies be concluded between Eskom’s new transmission and distribution companies.
Treasury cited a similar restructuring of Brazilian electricity utility Electrobras which resulted in electricity halving in four years, costs falling by 30% and the completion of projects decreasing from six to eight years to four years.
Treasury officials were unwilling to provide timelines on Eskom’s restructuring, saying that the final implementation will be subject to Eskom’s board and consultation with labour unions.
Officials did, however, add that plans are underway to tie Eskom executive remuneration to the delivery of targets.
In his budget speech, Mboweni said treasury has received funding requisitions from SAA, SABC, Denel and Eskom.
He only praised Land Bank which was able to settle its debts the past year.
“Isn’t it about time the country asks the question: do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do,” Mboweni asked.
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