South Africa’s Eskom, a well that only consumes

With a debt close to R500 billion (over $36.04 billion), South Africa’s Public electricity utility, Eskom, is looking to receive a further R59 billion ($4.25 billion) bailout from the government. Little wonder rating agencies call the company a risk to the South African economy, more like a well that only consumes.

Finance Minister Tito Mboweni introduced the Special Appropriation Bill in the National Assembly, to provide financial support to the struggling energy utility. The bill which was presented to the parliament will offer the Eskom a lifeline in the current and next financial year.

The R59 billion bailout from the government will come in two instalments: R26 billion (over $1.87 billion)in the 2019/20 financial year followed by R33 billion ($2.38 billion) in the 2020/21 financial year.

“I stated in my budget vote 7 for the National Treasury that Eskom presents the biggest risk to the fiscal framework because of its financial problems and negative impact on the economy. Given the high risks of a systemic failure, if Eskom were to collapse, the government is urgently working on stabilising the utility, while developing a broad strategy for its future,” Mboweni said.

Despite the planned turnaround strategy by South Africa’s President Cyril Ramaphosa and the unbundling of the company, Eskom still faces serious financial and operational challenges. Earlier this year, the power utility concluded a R15 billion ($1.1 billion) loan facility with a consortium of local and international banks.

Eskom’s group treasurer, Andre Pillay contribution to the successful execution of the Eskom Treasury mandate has been immeasurable and we appreciate the role that he played in ensuring that Eskom’s funding plans were successfully executed year after year. “We are cognizant of how critical the Group Treasurer role is for Eskom and have requested that Andre remain in the position for the next two months to ensure a seamless transition and business continuity through the handover process. Andre’s replacement will be announced in due course. We believe that Treasury operations will continue with ease with the support of the current Treasury leadership”, said Calib Cassim, Eskom’s Chief Financial Officer.