No more free lunch for ‘spoilt brat’ Eskom

Government has called on private energy producers to offer better prices and says it will soon issue an urgent call for energy solution to mitigate Eskom's deepening crisis
Government has called on private energy producers to offer better prices and says it will soon issue an urgent call for energy solution to mitigate Eskom's deepening crisis

Finance minister Tito Mboweni has vowed not to handle troubled power utility Eskom with kid gloves and that, in future, the government would assume the role of creditor to the utility.

Addressing the media ahead of the medium term budget policy statement in Cape Town on Wednesday, Mboweni described the power utility as being treated like “spoilt brat” who was given money without sufficient accountability, a situation Director-General Dondo Mogajane also likened to Father Christmas giving a child free sweets whenever it wanted.

Mboweni said Eskom, which would also be a beneficiary of R230 billion over 10 years for a series of structural reforms including its own, will have received a total of R69 billion to meet its “unanticipated cash needs” over the next three years.

However, he reiterated that government cannot continue to throw money at the power utility and that it should be run better.

“For the sizeable support required, it cannot be business as usual. Eskom must do the following: Run its current plant and equipment better, achieve other operational efficiencies, including much better cash management and fast track the separation of the utility into three parts as endorsed by the political principals.

Read: Mboweni says former ministers to blame for wage mess; ministers’ perks curbed

“There should be no doubt about the policy decisions in this regard,” he said.

Mboweni said, for the power utility, any more financial support would be in the form of loans.

“Going forward, new cash flow support will no longer be equity but will be in the form of loans. Once I am 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. Eskom is a business and should be run that way.”

According to treasury official, the effect of the decision will be that government will be a non-preferent creditor of Eskom.

The loans would be against the strength of the financial books of each of the envisaged units Eskom is split into.

Government previously gave the power utility a R6 billion subordinated loan in 2008 but had to convert that it into equity in 2015.

The decision would not, according to treasury, allow Eskom to go loan shopping without the protection of a government guarantee which would expose the utility should it default.

On South African Airways (SAA), Mboweni said the airline’s hopes of ever making enough money to sustain itself in its current configuration are non-existent.

“SAA is unlikely ever to generate sufficient 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. Operational and governance interventions are required urgently. I am pleased to learn that there are conversations involving SAA and potential equity partners, which would liberate the fiscus from this SAA sword of Damocles,” he said.

Mboweni said the national carrier might have to be sold off and the transaction would serve as a case study for future the state selling of assets.

“We agreed that we are going to sell off some assets but we won’t tell you which ones.”

Mboweni said government had decided to retain the user pay principle on e-tolls and though there would be further dispensation and value-added services, compliance would also be strengthened.

“Not paying your tolls has already led to our roads deteriorating. We have been unable to maintain the network. I urge the nation to please pay your bills. We need to build a culture of payment as government services can only be sustainable if all of us that can pay for services do so,” he said.

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