Eskom to get R20bn from state

2010-11-11 13:17

Government announced today that Cabinet has approved a R20-billion equity injection for Eskom over three years in a bid to strengthen the utility’s finances and tame tariff increases.

However, government spokesperson Themba Maseko withdrew an earlier statement that the lifeline would be funded by selling off non-core state assets, saying this had not been approved by the relevant ministerial cluster.

The money will therefore have to be found as part of the regular budget process.

“In the Cabinet statement this morning it was indicated that the equity injection of R20 billion to Eskom would be funded through the liquidation of non- strategic and non-core assets.

“This was incorrect, as this recommendation was not approved by the economic sector for employment and development cluster.

“The correct position is that the R20 billion equity injection to Eskom will be funded through the minister’s committee on the budget as part of the budgeting process. We regret the error.”

Maseko said it was not excluded that in future state assets may be sold to fund the cash-strapped electricity utility.

The fresh funding initiative comes on the back of an announcement last month that the state has nearly doubled Eskom’s guarantee framework from R176 billion to R350 billion, to ensure it can complete the Kusile Power Station.

“The need to strengthen the Eskom balance sheet is an important challenge. Doubts were starting to emerge in the market place about Eskom’s ability to continue with its build programme, and particularly the Kusile project, and we believe that if we extend the guarantee and also provide the R20 billion equity, we are strengthening Eskom’s ability to go even to the markets to raise additional capital,” he said.

“We want to get rid of any doubts about government’s commitment to ensure that Eskom continues with its build programme,” Maseko said.
The latest lifeline to Eskom could be seen as a government attempt to shield consumers from further large electricity price increases, and the economy from the inflationary impact of these.
“Government is also trying to fight the inflationary effect of the huge tariff increases that Eskom has been imposing.
“They still have a responsibility of submitting tariff increase proposals that they think will strengthen the balance sheet but we are not likely to see tariff increases in the region of 30% to 40%. That is what we are trying to do with this initiative.”
Maseko would not comment on whether Eskom was given the cash injection on condition that it would temper its demands for tariff increases. It began implementing average annual increases of 25% this year for three years.

Eskom had asked for increases of 45% percent. It said later that the National Energy Regulator’s refusal to approve these had contributed to it facing a shortfall of up to R190 billion over seven years.

“We want to strengthen their balance sheet,” Maseko said, adding that Cabinet did not “want to raise expectations” with the public on prices.

Eskom hopes to spend more than R385 billion over the next five years to build the new infrastructure it needs to meet the country’s electricity demand, and prevent a repeat of the 2008 power crisis that cost the economy billions.

Maseko noted that secure electricity supply was vital for implementing the government’s new economic growth path and achieving its aim of creating millions of jobs.

“We were going through a period of load-shedding that we think is something that needs to be avoided at all cost,” he said.
“Provision of energy is a key element of making sure that we grow our economy, and therefore we think it is absolutely essential that Eskom be given the space to increase its capacity to provide electricity.”

South Africa’s power needs are expected to double by 2030.

Econometrix economist Tony Twine said the funding decision could indeed contribute to lower tariff increases beyond the next three years, both directly and indirectly by reducing Eskom’s interest bill on borrowings.

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