EXPLAINER: Everything you need to know about government's Eskom bailouts | Fin24
 
  • Renewables

    The govt is assessing a R160bn plan to establish the world’s largest green-energy financing initiative.

  • Biggest Jump

    Oil prices have spiked after drone attacks in Saudi Arabia disrupted global supply.

  • Fin24’s newsletter

    Sign up to receive Fin24's top news in your inbox every morning.

Loading...

EXPLAINER: Everything you need to know about government's Eskom bailouts

Jul 25 2019 06:00
Lameez Omarjee, Fin24

Finance Minister Tito Mboweni on Tuesday tabled a Special Appropriations Bill for Eskom, allocating R26bn for the 2019/20 year and R33bn for the 2020/21 year to help the power utility meet its financial obligations.

Here's what we know so far.

What exactly is happening?

In addition to the Special Appropriations Bill, Treasury Director General Dondo Mogajane on Wednesday briefed the select committee on appropriations on the 2019 Appropriation Bill. He also explained the extent of government's financial support to Eskom.

The Appropriations Bill and Special Appropriations Bill are two separate bills.

The Appropriations Bill provides for a R23bn allocation to Eskom, which Treasury announced in the 2019 National Budget.

The National Assembly debated the Appropriations Bill on Tuesday, and it is now with the National Council of Provinces (NCOP) for consideration.

The R59bn, allocated to Eskom over the next two years, is over and above government's R23bn to the power utility for the current financial year.

Mogajane said an emergency R17.652bn, authorised to Eskom in April this year to prevent it defaulting on its debt, was not to be confused with the Special Appropriations Bill dealing with the R59bn allocated to Eskom. The special bill's process in Parliament is separate to that of the 2019 Appropriation Bill, which Treasury wants passed before July 31, 2019.

In documents made available to the committee, Treasury explained why the emergency R17.652bn was authorised in the first place, and how the R59bn additional funding fits in government's financial support to the utility.

Where does the R23bn come from?

The finance minister, in the National budget for 2019, announced that Eskom would be allocated R23bn over the medium term (the next three years) to support the reconfiguration of Eskom into three entities – generations, transmission and distribution.

This allocation was made to assist the power utility in servicing its debts, and making resources available for "urgent operational improvements".

Where does the R17.652bn come from?

When government allocated Eskom's R23bn which was to be disbursed in October 2019, it assumed the utility would be able to continue raising funding to meet its capital requirements if there were any shortfalls.

However, Eskom ran into a problem when the China Development Bank, which was supposed to disburse R7bn by March 2019, could not timeously execute the planned drawdown due to its central bank exchange control requirements.

As of March 29, 2019, Eskom experienced cash flow challenges.

Treasury stepped in to avoid a liquidity crisis. It first engaged with the Corporation for Public Deposits (CPD) to assist Eskom, but the CPD declined. "Eskom was facing a severe liquidity crisis," Mogajane said. Treasury then engaged with Absa Capital, from which Eskom obtained a bridging facility of R3bn, backed by a government guarantee.

As the loan was government guaranteed, failure of Eskom to meet its obligations would lead to consequences for both the power utility and the fiscus.

Mboweni then stepped in on April 2, 2019 and invoked Section 16 of the Public Finance Management Act, authorising the payment of R5bn for Eskom to honour obligations that were due.

This Section 16 approval is part of the R23bn allocation announced in the budget. "The allocation is not new, it is not in addition to the R23bn. The provisions of Section 16 is to bring forward the R23bn," Mogajane said.

According to the PFMA, the emergency amount to be authorised is limited to 2% of the annual national budget for that year – which means the maximum amount to be transferred to Eskom is R17.652bn.

What does Section 16 of the PFMA state?

Section 16 enables the finance minister to "authorise the use of funds from the National Revenue Fund to defray expenditure of an exceptional nature which is currently not provided for and which cannot, without serious prejudice to the public interest, be postponed to a future Parliamentary appropriation of funds."

Treasury must notify Parliament within 14 days of the authorisation, which it did.

How much of the R17.652bn has been used?

So far government has transferred R13.5bn of the R17.562bn. The balance (R4.1bn) will be disbursed in accordance with Eskom's cash flow requirements.

What happens to the remaining R5bn?

The remaining balance of the R23bn government allocated to Eskom is R5bn. This money will be disbursed after the 2019 Appropriation Bill is passed by Parliament and once the president assents to it, Mogajane explained. Treasury needs Parliament to pass it before July 31, 2019 so that government can disburse funds to various departments and entities as needed.

Why does Eskom need an extra R59bn?

The maximum amount of money allowed by Section 16 of the PFMA has been exhausted. The minister cannot use these powers again in the 2019/2020 financial year.

Treasury is engaging with Eskom's treasury to monitor the company's daily cash flow requirements and its financial position. If Eskom cannot secure a drawdown for existing funding resources, it would require additional funding to honour its obligations, Treasury said.

Mboweni, however, has tabled a Special Appropriations Bill for Eskom to be allocated R26bn in the 2019/2020 financial year and R33bn in the following financial year to meet its debt obligations. This bill follows a separate process in Parliament.

The funds come with conditions.

Does Eskom have enough money?

Mogajane said that by announcing the special appropriations bill, it has created certainty for lenders that the shareholder (government) has committed to the power utility.

Eskom can now be better positioned to raise funding from the market, if lenders see it has the backing of its shareholder. For now, it was important that government created certainty to lenders.

In the meantime, government will not be rushing to give Eskom more money. Any disbursements will require that Eskom meets conditions determined by the finance minister.

When will the Special Appropriations Bbill be passed?

Moganaje said that this is up to Parliament and its process. The provisions apply to the 2019/2020 and 2020/2021 financial years.

What does this mean for the fiscus?

In tabling the bill, Mboweni said it would come with "significant cost" to the fiscus and will affect SA taxpayers.

So far there is preliminary indication that tax revenue could be significantly lower than budgeted for in the 2019 Budget and government might have to increased its borrowing requirement. Government will have to revise its funding strategy.

Mogajane echoed these views, he told journalists that government would relook at its funding strategy and government will call on various stakeholders to determine which expenditure can be cut without negatively impacting service delivery.

"There are no holy cows on what is possible," Mogajane said.

treasury  |  eskom  |  dondo mogajane  |  bills  |  appropriations
NEXT ON FIN24X

 
 
 
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

What's your view on deep sea mining?

Previous results · Suggest a vote

Loading...