- Since December, Eskom and National Treasury have been in a standoff over how to fund more diesel.
- Burning diesel can relieve the country of two stages of load shedding.
- The use of diesel is constrained by logistics and likely only to happen during peak times.
- For more financial news, go to the News24 Business front page.
The stand-off between Eskom and the National Treasury over funding for diesel has ended with an agreement that government will support Eskom borrowing from commercial banks, should it be unable to reprioritise its own resources.
In December, Eskom declared that it had run out of money to buy more diesel, having spent R12 billion, overshooting its annual budget by more than 100% - with four months to go until the end of the financial year.
Eskom is logistically constrained by how much diesel it can move to the open-cycle gas turbine plants and can only feasibly burn up to R2.5 billion of feedstock a month. This would enable it to reduce load shedding by two stages for around six hours a day during peak times.
As well as the loans it is expected to take, Eskom has been urged to find internal savings. In January, it was able to make R1 billion available for diesel from its own resources. The National Treasury has consistently argued that Eskom does have resources for additional diesel, were it to make different spending choices.
READ | Eskom and Treasury at odds over diesel funds as load shedding crisis deepens
The "tough love" approach to Eskom has been a defining feature of the tenure of Finance Minister Enoch Godongwana, who has insisted that state-owned companies should find savings and remedies to their financial constraints rather than taking the easy way out and falling back on the fiscus.
However, in his budget next month, Godongwana is expected to announce major debt relief for Eskom. Its R400 billion debt – incurred mostly in constructing its newest power stations Medupi and Kusile – has prevented it from accessing funds in the capital markets. Godongwana said in October he would take between one-third and two-thirds of the quantum onto government's own balance sheet. He said the amount would be determined based on the size of the tariff increase granted to Eskom by the National Energy Regulator of SA (Nersa).
In December, Nersa awarded Eskom one of its largest hikes ever of 18.6%. While President Cyril Ramaphosa has suggested to Eskom that the full amount should not be implemented immediately, Eskom is legally unable to comply and must stick with the regulator's decision.
While Nersa did once previously revise its decision downwards at Eskom's request, the regulator is now reluctant to alter the regulated tariff without an order from a court.
Debt relief for Eskom is a crucial first step to unbundling the entity into three subsidiaries responsible for generation, distribution, and transmission. The unbundling and debt relief will enable Eskom to borrow again and make large investments, particularly in the transmission network.