Municipalities not paying Eskom lose out on key funds

Finance Minister Nhlanhla Nene. (GCIS)
Finance Minister Nhlanhla Nene. (GCIS)
(GCIS)

Cape Town – The government has resorted to withholding payments to municipalities that owe Eskom money in an effort to stabilise the finances of the state utility.

Finance Minister Nhlanhla Nene said Treasury had taken steps to persuade municipalities to conclude payment plans and repay Eskom debts.

“This was done by withholding equitable share payments to municipalities that have outstanding debts to Eskom and who failed to acknowledge this debt,” he told the Foreign Correspondents’ Association in Sandton on Monday.

Nene said government was concerned about the negative impact the electricity constraint was having on growth and potential growth in the country.

“Ensuring that Eskom returns to full financial and operational sustainability is a top a top priority of government,” he said in a speech emailed to Fin24.

“We have therefore invested significant time and resources in understanding Eskom’s funding requirements, the options available for closing any funding gaps, and what the path back to full sustainability looks like.”

The ANC thinks Eskom should sell some equity to pension fund managers such as the Public Investment Corporation, Economic Transformation Committee head Enoch Godongwana told Bloomberg.

Bloomberg also reported that Goldman Sachs Group is informally advising the National Treasury on the sale of state assets to raise money for power utility Eskom.

Poor maintenance causes new costs

“A number of operational challenges have contributed to the financial challenges that Eskom is experiencing,” said Nene.

“Inadequate maintenance of the power plants and distribution networks is resulting in deteriorating and unreliable performance, which is in turn leading to higher maintenance costs.

“During the MTBPS (mini budget) we announced a broad package for Eskom that includes a capital injection of R23bn, governance improvements, operational cost containment and additional borrowing and support for required tariff increases.

“Through the disposal of non-core state assets, the fiscal allocation of R23bn will be paid in three instalments, with the first transfer to be made in June."

R23bn just the beginning

Nene said the Government Support Package was more than the R23bn capital injection that many have focused on.

“The package attempts to balance a range of interventions, in recognition of the fact that there are many different stakeholders that play a role in returning the organisation to full health,” he said.

“But we have also recognised upfront, that the key ingredients to addressing Eskom’s funding challenges lie in interventions to contain costs.”

Focus on Eskom

“The key elements for Eskom are to fix their costs and revenues to fair and sustainable levels.

“Recently-seconded Eskom Acting CEO Brian Molefe has expressed his commitment to this objective. We will liaise closely with the power utility in this respect.”

Nene said South Africa faced a tough two years ahead.

“Government is working to stabilise the electricity supply, narrow the fiscal deficit, and begin to realise faster growth,” he said.

“The risks to the outlook are significant, and managing these risks will require a fine balancing act on the part of government.”

Budget feedback

“We are well aware of concerns, some of which we identified when tabling the Budget.

“These are: the economic growth trajectory, risks to the fiscal framework that include public-sector wage negotiations and the financing of state-owned companies.

“Government recognises that the economic growth path needs to be restored. Achieving faster sustainable growth and large-scale job creation will require structural shifts in the economy. Our plan to enable faster economic growth over the period ahead encompasses a number of initiatives.”

SA can achieve growth targets

Nene believed South Africa could still achieve its forecasted growth of 3% for 2017/18.

“Firstly, we will continue to invest heavily in the public-sector infrastructure programme that has already begun to lift constraints to growth.

“Investments into Transnet and telecommunications will modernise our transport network and boost information technology access.

“Also on our list is to reduce energy consumption and promote energy efficiency. Enhanced tax incentives will promote greater energy efficiency.

“Interventions such as the energy efficiency and demand-side management grant to municipalities will encourage households to use energy more efficiently."

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