BUSINESS NEWS - The R100 billion debt support Eskom has requested from government is not nearly enough to return the struggling utility to sustainability, says Business Unity South African (Busa).
It should be at least R200 billion, but even that would be pointless unless there is a parallel process to restructure Eskom and re-evaluate the whole energy and electricity sector, according to Busa vice-president Martin Kingston.
Kingston spoke to Moneyweb on Monday, two days before finance minister Tito Mboweni will deliver his annual budget speech. Mboweni is expected to announce financial support for Eskom, which is currently over-burdened with R419 billion of debt. On the current trajectory, Eskom’s debt is expected to increase to more than R600 billion in the next few years.
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Government has issued guarantees of R350 billion to Eskom, most of which has been utilised. These guarantees are recorded as contingent liabilities in the government books.
Eskom is widely considered to be the biggest threat to the fiscus.
Mboweni has been left with little room to move. Government debt is already high and rating agencies will be watching his every move in this regard.
Strong incentive
Moody’s is currently the only ratings agency that still attaches an investment grade rating to the sovereign debt. It acknowledged in a report last week that the country’s heavy reliance on Eskom’s generation fleet, which represents 88% of installed capacity, provides a strong incentive for government to help improve Eskom’s “very weak financial position”.
Kingston points out that government has made it clear that it is not prepared to see Eskom fail. Busa supports that. Eskom is fundamental to the South African economy.
Busa is, however, not suggesting that Mboweni make a once-off announcement for government to take over R200 billion of Eskom debt, Kingston says.
He says government will have to decide the extent of direct or indirect support it provides, but points out that with its better credit rating, government would be able to borrow at an interest rate several percentage points lower than Eskom gets.
