Comments on MTBPS Statements on Eskom

From the statements made about Eskom in yesterday’s Medium-Term Budget Policy Statement (MTBPS), it appears that the Finance Minister and National Treasury are being more deliberate about enforcing the conditions attached to the Eskom debt relief announced in the February budget.

 We have previously questioned the execution of the debt relief plan, given the difficult trade-offs and political will that we believe are needed (see Eskom Debt Relief Plan – An update | Futuregrowth Asset Management). The statements made in the MTBPS appear to give some teeth to the enforceability of National Treasury’s conditions attached to Eskom’s debt relief package - and the choice of words in the speech seems to point to a harder line being taken by National Treasury on Eskom specifically, and SOE bailouts, in general.

 We have the following to add on 1) the coal-fleet review; 2) the municipal debt problem; and 3) the conditions attached to the debt:

1. We look forward to the publication of the long-awaited report from the coal-fleet review. The comment that “effective implementation of the recommendations will help transform the electricity sector” and that the recommendations will “inform revisions to Eskom’s corporate plan, bolster accountability and effective, informed oversight” points to a holistic view of the problem and that the recommendations will be targeted to attempt to achieve the sectoral reform that is so overdue.

2. The R56.8 billion now owed to Eskom by recalcitrant municipalities indicates that the problem has continued to escalate since the announcement of the relief package. Given the total collapse of many of these municipalities, it remains unclear to us how they will be able to comply with the conditions required in order to qualify for their Eskom debts to be written off. (These include, for example, implementing stricter credit controls and enhancing revenue collection.) Further detail on the steps National Treasury will take on these points, and associated deadlines for implementation, would be helpful.

3. The proposed Eskom Debt Relief Amendment Bill has been submitted to “enhance the enforceability of conditions” attached to the debt relief announced in the February budget. These amendments allow the Minister to charge interest on amounts advanced (at a rate determined by the Minister) and for National Treasury to reduce future allocations (by a cap of 5% of the total relief applicable for any one year). While these do add more teeth to the enforceability of the conditions, we think the 5% cap on reducing future allocations is possibly too small a number to be of any real effect. For example,  if used in FY24/25, this will mean that Eskom will qualify for R62.7 billion of relief instead of R66 billion, and if used in FY25/26, will mean that Eskom will qualify for R38 billion of relief instead of R40 billion).