It is not clear where the injection of close on R230 billion of fiscal support from the government that President Cyril Ramaphosa announced in his state of the nation address (Sona) last week will come from.
This according to Ravi Bhatia, a S&P Global Ratings director and the lead analyst for the South African sovereign rating.
Ramaphosa announced during his Sona that a Special Appropriation Bill would be submitted to Parliament on an urgent basis to allocate “a significant portion of the R230 billion fiscal support that Eskom will require over the next 10 years in the early years”.
“This we must do because Eskom is too vital to our economy to be allowed to fail,” he added.
Further details regarding the bailout would be provided by Finance Minister Tito Mboweni in due course, Ramaphosa said.
Bhatia said during an interview that it wasn’t clear if the R230 billion would be new money or be included within the existing debt framework.
“If the government intended to raise the R230 billion as new debt and transfer the money to Eskom then that would likely worsen the government’s fiscal metrics,” he said.
There was a need for details regarding where the R230 billion would be sourced from, Bhatia said.
Local economists have said that the Eskom bailout could be funded through a combination of debt – in particular the issuing of extra state bonds – as well as through approaching major multilateral institutions for loans and even tax hikes from next year.
A reallocation of government expenditure could also be a possibility to finance the bailout.
S&P rates Eskom at a credit rating of CCC+, which is seven notches below investment grade, while the agency rates the South African government at a credit rating of BB, which is two notches below investment grade.