Mboweni on Eskom bail out: How China loan delay triggered a scramble for funds

An urgent Treasury report signed by Finance Minister Tito Mboweni to Parliament earlier this month highlights just how dire Eskom's financial situation is after a China Development Bank (CDB) loan failed to materialise, nearly plunging Eskom further into a liquidity crisis.

The report also says that Eskom does not expect to be able to generate enough cash to pay all of its maturing financial obligations over the next five years.

The purpose of the report to the legislature was to inform it of Mboweni's bid to invoke section 16 of the Public Finance Management Act, authorising a fund transfer to the embattled power utility so that it "could meet its obligations and avoid a call on its existing guarantees".

Mboweni said that at the time when he delivered his Budget speech in February, it was anticipated that Eskom would continue to raise the required funding, which is supported by Government guarantees, until Parliament was constituted following the elections.

'Eskom experiencing difficulties'

"Furthermore that the appropriation of the R23bn would follow the normal Appropriation process and therefore that the funds would be disbursed between August and October 2019...

"However, by the end of March 2019, it became evident that Eskom was experiencing difficulties in raising the required funding as well as drawing down on existing facilities," Mboweni wrote.

He said Eskom had expected to drawdown R7bn from the CDB facility of $2.5bn, which was concluded in July 2018.

"Although CDB had committed to disburse these funds to Eskom by 25 March 2019, the bank was unfortunately unable to timeously execute this planned drawdown due to its central bank exchange control requirements," the report said, adding that the CDB had since indicated that the planned drawdown would now be executed during April.

'Liquidity challenges'

Mboweni went on to say that the delay in accessing the funding meant Eskom was unable to meet its obligations that were due at the end of March and resulted in the power utility experiencing "liquidity challenges".

National Treasury then approached the Corporation for Public Deposits in late March to access a R4.6bn facility while Eskom waited for the CDB funds, but this was declined.

Mboweni said as a contingency measure, Eskom requested Absa Capital to provide a R3bn bridging facility, which was supported by a government guarantee. 

Currently government’s exposure to Eskom in terms of guarantees is R281bn. In the report Mboweni said the failure of Eskom to meet its obligations may have triggered a call on government guarantees.

'Cash flow inadequate'

"Even after accounting for funds raised, cash flow is not adequate to fund its capital expenditure programme," the report read.

Eskom spokesperson Khulu Phasiwe could not be reached for comment on Friday while Public Enterprises Minister Pravin Gordhan's spokesperson Adrian Lackay told Bloomberg on Thursday that Eskom needed the funds to be transferred as quickly as possible to ensure its financial stability. 

Eskom is saddled with R419bn of debt and isn’t selling enough power to cover its interest payments and operating costs, a legacy of years of mismanagement and cost overruns on new plants.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders