Ramaphosa assures South Africans that Chinese loans to state-owned entities are without conditions

Critics of Sino-Africa relations have often warned about generous loans from China which come with conditions that countries often regret in future. Although there have been many arguments against the perception that Chinese engagement with Africa is neocolonial, proponents of this idea have raised reasons for countries relating with China to apply caution in their dealings. Hence, South Africa’s National Council of Provinces (NCOP), the upper house of the Parliament, on Tuesday asked President Cyril Ramaphosa about the terms of a recent loan from China to state-owned entities Eskom and Transnet.

“There are no specific conditions for this loan,” Ramaphosa said.

“Eskom has indicated it will not be able to make the loan agreement public since it contains information that may put Eskom at a disadvantage when negotiating in the market.

“The China Development Bank facility is more competitive than the global market rate.

“The loan is government guaranteed under the existing Government Guarantee Framework Agreement”.

According to Ramaphosa, South African electricity public utility Eskom recently agreed to a $2.5 billion loan deal with the China Development Bank, which will be used to fund the construction of Kusile coal-fired Power Station. He said this is the third tranche of a $5 billion facility that was approved by the Ministers of Finance and Public Enterprises in 2015.

“The facility has a grace period of five years and thereafter the principal amount is repayable by Eskom in 20 instalments over a period of 10 years,” he said.

On the loan to state-owned integrated freight transport company, Transnet from the Industrial and Commercial Bank of China, Ramaphosa noted that only the standard terms and conditions applicable to that kind of loan were agreed.

“The funds will be used to finance the general operating activities and certain capital expenditure of Transnet.

“Transnet will be responsible for paying the interest and repaying the capital.

“The facility is a five-year, rand denominated, quarterly amortising loan, at a floating and competitive interest rate,” he said.

However, Mmusi Maimane of the opposition Democratic Alliance (DA) protested the secrecy surrounding the Eskom loan. He wondered why public money must be subject to confidentially, asserting that “Eskom is involved in state capture, where the Guptas and the ANC made their profits”

Eskom has been in dire financial straits for years, with analysts attributing the utility’s poor performance to poor leadership, the cost of primary energy, which is coal, and staff remuneration. Studies have shown that Eskom is highly overstaffed, with more than 47,000 staff on its payroll. The state-owned enterprise under the purview of Public Enterprises Minister Pravin Gordhan got a new CEO in May, among other actions taken to stabilize the company. However, it suffered a net loss of R2.3 billion in 2018, compared with a R0.9 billion profit the previous year. The National Treasury raised fears that Eskom’s financial woes could collapse the South African economy.

Gordhan told the portfolio committee on public enterprises in August that the cleanup of Eskom is working as investor confidence has shown, adding that the funds raised this year would go a long way to put Eskom in a better liquidity position.

So far, 10 implicated executives have left, while disciplinary hearings for senior executives is being finalised. Eleven criminal cases involving nine senior executives have been opened. Remedial action has been taken against 25 staff doing business with Eskom and seven have been showed the exit as a result. The company is also investigating 239 whistleblower cases, 122 of which have been concluded. Also, irregular expenditure contracts are being investigated.

Eskom’s board is expected to submit a strategy document that will guide the company’s activities for the next five years, at the end of September.

Meanwhile, Transnet said it will invest R7 billion ($464 million) in deepening berths at Africa’s biggest container terminal in Durban to accommodate larger vessels. The company said that the project will include the reconstruction, deepening and lengthening of a few berths for larger ships.