Home South African Budget 2024: Eskom has generated a loss of R24 billion

Budget 2024: Eskom has generated a loss of R24 billion

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The National Treasury has disclosed that from 2022 to 2023, Eskom generated a loss of R24 billion.

File picture: Dumisani Sibeko

THE NATIONAL Treasury has disclosed that from 2022 to 2023, Eskom generated a loss of R24 billion.

The state-owned entity (SOE) also continued to rely on government support for liquidity, according to the Treasury Budget Review.

“The electricity, gas and water sector contracted by 5.4% in the first nine months of 2023 compared with the same period in 2022, mainly due to Eskom constraints,” Treasury said.

Government acknowledged that the “financial sustainability of Eskom is compromised by poor generating performance, declining sales, the utility’s increasing primary energy costs, escalating municipal arrear debt and high debt-service costs”.

“Eskom’s operational performance has deteriorated significantly over the years. The power system remains unpredictable and unreliable, with power cuts expected to continue until the capacity shortage of 4,000 MW to 6,000 MW is addressed,” Treasury added.

LOAD SHEDDING

Finance Minister Enoch Godongwana, in his Budget Speech, said that “load shedding is a problem that confronts all South Africans. It disrupts production, operations and livelihoods. Reforming the sector will result in long term energy security. We took the necessary decisions in the past five years and these are bearing fruit”.

Government has therefore said that they are working with the Ministry of Electricity, the Minister of Public Enterprises and Eskom to implement a recovery plan and that they are taking recommendations from the VGBE consortium’s independent assessment of coal-fired power stations.

This will no doubt impact Eskom’s operational conditions for 2024/25.

In 2023/24 period Eskom was allocated R78 billion as based in the Eskom Debt Relief Act (2023) and the entity has been give R44 billion. R16 billion has been converted to equity after Eskom complied with all the conditions for the first quarter.

“An amendment to the act has been proposed to empower the Minister of Finance to charge interest on the loan and reduce the debt-relief allocations if Eskom does not comply with the conditions,” Treasury said in its Budget Review.

Treasury has realised that Eskom will fail to dispose of the Eskom Finance Company by the agreed time frame of 31 March 2024, therefore government has proposed to reduce the allocations of R78 billion in 2023/24 and R66 billion in 2024/25 by R2 billion in each year.

In 2025/26, government will give R40.2 billion to Eskom. Treasury also noted that In the same year, government will take over a maximum of R70 billion of Eskom’s debt by switching selected debt instruments into government debt.

SMART METERS

Gondongwane did note in his Budget Speech that government would introducing a new R2 billion conditional grant to fund the rollout of of smart prepaid meters.

PRIVATE INVESTMENT

In terms of private sector investment for Eskom, Government noted that it has been working in partnership with the International Finance Corporation to agree on the short-term options for off-balance sheet financing to help in this investment prospect.

“A pilot project will be implemented to test the market appetite for the proposed option, with a request for proposals expected to be issued by end-July 2024,” Treasury said.

“It is through the combination of private investment in new energy projects, rooftop solar installations and improvements in Eskom’s generation fleet that load shedding will reduce, and reliability and security of supply improve,” Godongwana added.

“To promote further investments in renewable energy, this budget proposes an increase in the limit for renewable energy projects that can qualify for the carbon offsets regime, from 15 megawatts to 30 megawatts.”

MUNICIPALITIES AND DEBT RELIEF

South Africans should note that the Eskom debt-relief arrangement is on track to conclude in 2025/26, subject to strict conditions.

Treasury moreover noted, that improved regulations have given rise to more than R100 billion in new private energy generation projects.

Those municipalities that are in arrears and are indebted to Eskom were invited by government to apply for debt relief.

In order for the debt to be written off municipalities need to comply with set conditions. These conditions include enforcing strict credit controls, paying their monthly electricity accounts and enhancing revenue collection.

“By December 2023, 72 applications had been submitted, totalling R56.7 billion of total municipal debt owed to Eskom at end‐March 2023. Seventy applications totalling R55.2 billion had been approved as of January 2024,” Treasury said.

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