In Wednesday’s medium-term budget policy speech, Finance Minister Tito Mboweni outlined what he believes is South Africa’s biggest economic risk, second only to slow economic growth.
In a word, that risk is Eskom.
The country’s massive, flailing power utility is now burdened by a massive R450bn debt, has recently re-introduced rolling blackouts to save the grid from total shutdown, and is still without a permanent chief executive.
Although some analysts argue that “saving” Eskom is like putting a band-aid on a bullet wound, the medium term budget policy statement outlines some clear steps to be taken in order to turn it around.
As in budgets gone by, this starts with yet another government bailout.
Against the backdrop of this year’s very financially constrained budget, the government has put aside an additional R26bn in financial support to Eskom.
“Very difficult budget adjustments have been made,” in order to bring this to fruition, said the Finance Minister.
The treasury has also brought forward R33bn in 2020/21 and R10bn in 2021/22, “to meet unanticipated cash needs.”
And even more could be required, Mboweni conceded, pending “further delays in operational reforms.”
Delays, looking at Eskom’s history, are likely.
However, with the hope the extra cash injection will lift immediate financial restraints, the government hopes that Eskom will be able to focus on its operational difficulties and the task of restructuring into three separate entities.
“Doing so will mark the beginning of a transition to a competitive, transparent and financially viable electricity sector,” the medium term budget detail reads.
If this is all sounding a tad too similar to previous budget speeches, Mboweni did make one definitive statement that will essentially mark a new trajectory for the utility.
“Going forward, new cash flow support will no longer be equity but will be in the form of loans.” His statement was greeted with enthusiastic cheers by MP’s.
Eskom, he said, also needed to do three things differently:
Run their current plant and equipment better
Achieve other operational efficiencies, including “much better” cash management
Fast track the separation of the utility into three parts “as endorsed by the political principals.”
Perhaps indicative of his growing impatience around policy change and implementation, he added that “there should be no doubt about the policy decisions in this regard.”
When Mboweni is “convinced that the Eskom Board and Management has made an irrevocable commitment to implement government’s decisions and there is enough progress, we will negotiate the appropriate size of debt relief,” he declared.
“SAA is unlikely to ever generate enough cash flow to sustain operations in its current configuration. Which then begs the question: how long are we going to be on this flight path? Forever? I think not,” said the Minister.
According to the budget detail, SAA is currently unable to repay outstanding government guaranteed debt of R9.2bn. If SAA defaults on this payment, the government is contractually required to step in and repay the debt.
This will be in addition to the R5.5bn that government has allocated to the chaotic airline carrier this year already, to help it finance its current debt load.
“Operational and governance interventions are required urgently!” said the minister.
He highlighted the desirability of the privatisation of SAA, a concept that while not new, is something he hopes is gaining traction.
“I am pleased to learn that there are conversations involving SAA and potential equity partners.” This, he said, could potentially “liberate the fiscus from this SAA sword of Damocles.”