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Rand weakens on the back of Eskom bail out

Jul 23 2019 12:52
Bloomberg and Fin24

The rand weakened after Finance Minister Tito Mboweni’s comments on Eskom's bail out, declining as much as 0.6% to R13.9499 against the dollar, while yields on government bonds due 2030 climbed the most in six weeks.

“Mboweni reminded investors that South Africa faces major fiscal challenges, mainly due to the substantial burden of Eskom which needs to be properly restructured,” said Piotr Matys, a currency strategist at Rabobank in London.

Mboweni announced earlier on Tuesday that the cash-strapped power utility would receive an additional R59bn during the tabling of a special appropriation bill for Eskom.

The bill provides for an additional amount of money to be made available to the department of public enterprises (DPE) to assist Eskom in meeting its financial obligations. The bill allows for R59bn to be appropriated from the National Revenue Fund to the DPE – R26bn of which is allocated for the current financial year (2019/2020) and R33bn is allocated for the following financial year (2020/2021).

The bill specifically states that the money must be allocated to Eskom to "assist with its financial obligations".

Eskom has accumulated R440 billion of debt and isn’t selling enough power to cover its costs, the legacy of years of mismanagement and cost overruns at its new plants.

While the additional government aid will enable the utility to meet its financial obligations this financial year, it remains the biggest threat to the nation’s finances and its operating model needs to be overhauled, Mboweni said.



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