Eskom: South Africa to Cover Power Firm’s Debt Amid Crisis

Eskom: South Africa to Cover Power Firm's Debt Amid Crisis (News Central TV)
Electricity pylons stand in Soweto, Johannesburg in South Africa on Tuesday, August 6 2019. Pic: Waldo Swiegers / Bloomberg

The South African government has announced that it will cover nearly two-thirds of the $23 billion total debt of the state power business, Eskom. This occurs at a time when malfunctions at Eskom’s power facilities have caused power outages that are harming the nation’s economy.

Finance Minister Enoch Godongwana said in a budget update on Wednesday that the debt transfer would ensure Eskom’s long-term financial viability after years of state cash injections that have failed to turn around the utility’s collapsing power plants, which generate nearly all of South Africa’s electricity.

Eskom: South Africa to Cover Power Firm's Debt Amid Crisis (News Central TV)
South Africa’s finance minister Enoch Godongwana
© Esa Alexander/Reuters

The move’s details will be worked out before South Africa’s full-year budget is released early next year, but the quantum is expected to be between one-third and two-thirds of Eskom’s current debt, Godongwana said.

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The national treasury’s decision should free up funds for distribution, transmission, and maintenance expenses. This month, President Cyril Ramaphosa proclaimed a state of disaster due to the energy crisis, enabling the government to take immediate action.

Eskom has struggled with mismanagement and graft. Since 2008, it has gotten bailouts totaling more than $14 billion. The government’s most recent action comes as the departing Eskom CEO, who was scheduled to quit the company next month, leaves immediately.

Andre de Ruyter won’t be required to fill out the remainder of his notice term, the company’s board decided on Wednesday. Mr. De Ruyter had questioned the government’s capability to address the corruption at the utility company in an interview with a local TV station on Monday.

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With Russia’s war in Ukraine and China’s slowing growth, “small open economies like ours need to be especially careful and have solid fiscal buffers in place to weather the coming storm,” Godongwana said.

The South African Treasury will impose conditions on the Eskom debt transfer, such as an independent review of the company’s power plant problems. However, the main opposition Democratic Alliance has rejected any government takeover of the debt, instead favouring utility privatisation.

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