- Financial support comes with condition that a “Chief Reorganisation Officer” will be jointly appointed by Mboweni and Public Enterprises Minister Pravin Gordhan to oversee the recommendations of the Presidential Task Team as part of the conditions laid out in the financial support package.
- The corporate restructuring and turnaround of Eskom will be unprecedented in South Africa – SA Treasury has communicated.
- Transmission will be the first division to be morphed into its own entity in mid-2019.
- Existing and future Power Purchase Agreements will be manage by the new transmission company.
Finance Minister Tito Mboweni has provided A total of R69 Billion in a financial support package for South Africa’s beleaguered energy utility Eskom. The allocation is structured in an annual amount of R23 Billion annually for the next three years. The Minister stressed twice that the financial support allocation does not mean that government is taking on Eskom’s debt and the financial support comes with a specific condition.
“Eskom has got itself into debt and it is Eskom that must get itself out of debt” he said.
Eskom is currently holding a debt book of approximately R420 Billion which poses a direct threat to the countries sovereign risk. The finance minister announced the financial support package as part of his maiden Budget Speech in Parliament earlier today.
South Africa’s president, Mr Cyril Ramaphosa announced in his state of the nation address two weeks ago that Eskom would be split into three separate business entities namely; generation, transmission and distribution. Each division will operate independently under a holding company, Eskom Holdings and will be responsible for their own financial results..
The R69bn in support is also meant to support the splitting of the power utility into three entities – generation, transmission and distribution, according to Treasury. The support package will be closely scrutinised by Moody’s Investor Service, the sole major ratings agency to have SA’s sovereign debt at above investment grade. A “Chief Reorganisation Officer” will be jointly appointed by Mboweni and Public Enterprises Minister Pravin Gordhan to oversee the recommendations of the Presidential Task Team as part of the conditions laid out in the financial support package. Mboweni added that more announcements on this would be made in coming weeks in this regard.
Transmission will be the first division to be morphed into its own entity. The new transmission board will be appointed in mid-2019. Eskom will have to provide separate, audited financial results of each of the three businesses.
The transmission company’s assets will consist of all Eskom’s existing transmission network assets, including the grid, substations and associated infrastructure. All transmission property rights under Eskom will be migrated to the transmission company, as will transmission licenses and supply agreements. This is particularly relevant to Independent Power Producers (IPP’s) because existing and future Power Purchase Agreements will be manage by the new transmission company.
“The corporate restructuring and turnaround will be unprecedented in South Africa,” Treasury has communicated in an annexure. Government has committed to holding extensive consultations with affected stakeholders such as labour, lenders and independent generators.
Author: Bryan Groenendaal