Finance minister gives Eskom tough love

2014-10-22 17:11

Government will not be extending any new debt guarantees for Eskom, says Finance Minister Nhlanhla Nene.

Tabling his first Medium-Term Budget Policy Statement (MTBPS) today, Nene again committed government to a range of measures aimed at helping Eskom close its funding gap.

These included increased borrowing, which would not be sourced through extending guarantees.

“Eskom’s additional borrowing, expected to be about R50 billion over the medium term, will be accommodated within the existing guarantee facility,” Nene outlined in the 2014 MTBPS.

“No new guarantees will be issued.”

Treasury was, however, open to the idea of converting subordinate loans into equity, should Eskom need additional support.

“Government will closely monitor Eskom’s financial position, and, if necessary, could consider providing additional support to the utility by converting its existing subordinate loan to equity.”

Eskom would also get a direct allocation of R20bn, which would be raised by the “sale of non-strategic state assets”.

“This will have no impact on the budget deficit. Funds will be appropriated as they are realised.”

Eskom faces a R225bn revenue shortfall, partly as a result of being granted lower-than-expected tariff increases, and Nene conceded that the measures he was announcing would not cover this.

He said the state’s aim was rather to ensure that the electricity utility was in a position to continue borrowing on the open market.

“Eskom will be able to borrow up to R225bn on the back of our guarantees, on the back of their balance sheet,” he told a media briefing before delivering his medium-term budget speech in the National Assembly.

“The measures that we are announcing here are the short-term measures that seek to address the issue of Eskom’s financial health now, so that they are able to be in a position to borrow.

“The package we are talking about is meant just to put Eskom on a proper and sound financial footing so that they are able to fend for themselves.”

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