Following the February 2023 Budget, and the announcement of the long-awaited debt relief plan for Eskom, we published a note outlining our views on the plan.
It is worth repeating our conclusion from that note:
“In conclusion, and perhaps of particular significance, are these two sentences from page 22 of the Budget Review Document: “Since 2008/09, government has provided the utility with R263.4 billion in bailouts. These allocations have failed to stem the collapse of Eskom’s balance sheet and operations.” This seems to indicate a recognition from the shareholder that a different approach to that undertaken since 2008 is needed, which is a positive step if the political will to deliver on this intention is found. The real test will come in the execution of this debt relief plan, which is where the shareholder has previously stumbled. We hope that this time is, indeed, different.”
In this note we assess whether a “different approach” has indeed been followed in the execution of the plan and we measure some of the outcomes since the plan was outlined.
Our February note outlined some of the outstanding conditions that would require monitoring and follow-up, chiefly:
The outcome of the international consortium’s review of the coal-fleet and the implementation of its recommendations.
The municipal debt problem and the implementation of the plan to address this.
The R70 billion “direct takeover” of Eskom’s debt.
We deal with each of these points below.
1. Coal fleet review
We understood from the Budget Speech and documentation that the outcome of the international consortium’s “coal-fleet review” would be available by mid-year and that Eskom would be obliged to implement its recommendations (which were aimed at improving operations for the coal-fired fleet) as one of the conditions for the debt relief.
The specific wording in the 2023 Budget Review is copied below for completeness (emphasis is ours):
“The National Treasury has appointed an international consortium with extensive experience in the operations of coal-fired power stations to review all plants in Eskom’s coal fleet and advise on operational improvements. The review is scheduled to conclude by mid-2023. Eskom is required to implement the operational recommendations emanating from this independent assessment. This will include a determination of which plants can be resuscitated to original equipment manufacturers’ standards, following which Eskom must concession all these power stations with clear targets for the electricity availability factor and operations.”
The Minister of Electricity, Kgosientsho Ramokgopa, provided some limited feedback on this matter in response to a question at Sunday’s weekly media briefing on Eskom and load-shedding. Minister Ramokgopa indicated that the feedback he had from Minister Godongwana was that National Treasury (NT) have not yet received the final report. We were told that assurances have been given that the report will be handed to Minister Ramokgopa when NT get it, so that they can undertake “some reflections on the report”. There was no reason given for the delay from the midyear deadline indicated at the time of the Budget nor any clarity provided on the seeming optionality on implementing the recommendations, which is a change from what we understood to be “required”.
Our questions raised in our February note still stand, and we await clarity on these:
We would like to understand specifically what the recommendations are, how they will be funded, the timelines for implementation and whether, indeed, it is a realistic plan that Eskom’s aged coal fleet can be “resuscitated to original equipment manufacturer’s standards”.
We also have questions about the plan to concession these power stations, specifically:
How this fits in with the government’s Integrated Resource Plan, which anticipates the decommissioning of Eskom’s coal fleet over a particular timeframe;
Whether this plan aligns with government’s COP commitments and the Just Energy Transition financing possibilities; and
Whether there is demand for such assets, particularly with banks and institutional funders increasingly committed to decarbonising their funding books and plans to achieve “net zero” emissions by specified dates.
Given the supply problems and the ongoing load-shedding (which was elevated to Stage 6 again last week), we would have expected more urgent action and ongoing communication on this key condition and intervention.
Eskom’s return to sustainability is key to uplifting our economy and addressing the many challenges we face. The questions we asked earlier this year still need an answer.
2. Municipal debt problem
In 2015, municipal debt to Eskom amounted to R5 billion. At the time of the 2023 Budget, and the announcement of the municipal debt intervention, it amounted to R56.3 billion. Today it amounts to R63.2 billion.
Per National Treasury’s own admission when they announced the debt relief package in February 2023, “municipal Eskom debt is a material risk to the Eskom debt relief.”
Eskom Municipal Debt
This is unsustainable, and despite much rhetoric and handwringing by a succession of government Ministers since 2016, no meaningful interventions have taken place - and as can be seen from the above graphic, the problem is ballooning.
Minister Ramokgopa has offered more words and intentions more recently, and was quoted as saying: “We have to do something to resolve this. We are in discussions with colleagues from distribution, from National Treasury and from SALGA to try and address the debt of the municipalities.”
While the debt relief announced in the Budget in February intended to solve this problem, we had expressed concerns that it would “require significant political will to implement, as well as meaningful take-up by historically recalcitrant municipalities.” We expressed the belief “this poses some degree of execution risk, which may risk the ultimate successful implementation of the overall relief plan.”
And so it has come to pass …
At the time of writing, it has been reported that only 13 municipalities have applied for the relief package and only 7 have been approved. This is not going to be enough to solve the problem and we believe more urgent interventions at the municipal level are needed – to restore the municipalities to operational and financial viability so that they can pay what they owe. Significant consequences for non-payment also need to be implemented, to deter and avert the culture of non-payment that is seemingly taking root. These interventions could have political consequences and may need decision-makers to make some difficult trade-offs in solving this complex problem. What is clear is that the historic strategy of not making these difficult trade-offs is unsustainable and results in an escalation of the problem.
It cannot be acceptable that the very sustainability of Eskom - and the risk of the debt solution failing - is placed at the mercy of defaulting municipalities and a relief plan that looks good on paper but is stumbling at the critical implementation phase.
3. Direct takeover of R70 billion of Eskom’s debt
As this point related to debt that is coming due in 2025/2026, we do not expect additional detail at this stage.
More than lip service needs to be paid to the significant problems facing Eskom. Before the announcement of the debt relief measures, we wrote that “delays, half-measures and ‘kicking the can down the road’ are not going to get the results the nation needs. Bold, urgent and integrated intervention on Eskom is extremely overdue.”
And while some forward momentum is (finally) taking place to address the many problems at Eskom, the debt relief plan – which is a cornerstone of Eskom’s return to sustainability – is at risk of failing if we do not see meaningful and urgent implementation of some decisions and actions that may require political fortitude and involve some difficult trade-offs.
Six months after the long-awaited announcement of Eskom’s debt relief plan, our fear that decision-makers may stumble on the execution of the plan is on the way to being realised.
We deserve better.
 Budget Review 2023, p22
 Budget Review 2023, p22
 2023 Municipal Debt Relief Fact Sheet_03May2023
 South African Local Government Association