JOHANNESBURG - Legislators will today have to walk a fiscal tightrope when they decide on the special Eskom appropriation bill aimed to release nearly R60 billion over the next two years to keep the embattled power utility afloat.
Media reports yesterday suggested that Finance Minister Tito Mboweni will today ask legislators to tap into the National Revenue fund and give Eskom R26bn for the current financial year and a further R33bn for the 2020/21 fiscal year.
The National Treasury’s move to boost Eskom thin balance sheet follows an undertaking by President Cyril Ramaphosa last month that government will “allocate a significant portion of the R230-billion fiscal support that Eskom will require over the next 10 years in the early years.”
The International Institute of Finance (IIF) yesterday warned that support for Eskom will balloon the budget deficit closer to 6 percent.
The IIF in a research note said nominal gross domestic product (GDP) growth is likely to significantly undershoot the government’s expectation of 6.9 percent for this fiscal year.
“Together with cyclical revenue weakness, the frontloading of financial support to Eskom will likely widen the fiscal deficit to nearly 6 percent of GDP in 2019, much larger than the government’s 4.5 percent of GDP target for the 2019/20 fiscal year,” IIF said.
“The structure of Eskom support (capital injection, debt transfer, or some combination thereof) will determine the extent of the deterioration of government deficit and debt.”
The IIF further warned with the government unlikely to be able to introduce meaningful corrective measures to stop the deterioration in the fiscal deficit and public debt ahead of the next Moody’s rating review scheduled for November, “the risk of a credit rating downgrade to non-investment grade has risen.”
Moody’s has already indicated SA will lose its investment grade credit rating if its debt levels and those of Eskom rise further. Moody’s is the only one of the major rating agencies that still have the country’s sovereign debt above junk.
In February, National Treasury said that it had allocated R23bn a year over the next decade to shore up Eskom’s books but Eskom said the allocation would not be enough for it to meet its debt obligations.
North West University Business School economist Professor Raymond Parsons said the additional bail out for Eskom will inevitably put an extra burden on the MTBPS in October, which together with other new expenditures and falling tax revenues, will see a deterioration in SA's public debt-to-GDP ratios.
“It essential for Eskom to get a cash injection from government now to tide it over its current debt obligations and to help keep the lights on. But this needs to be coupled with a irreversible commitment to implement restructuring or unbundling of Eskom to stabilize it in the longer term,” Parsons said.
“Bail outs of this magnitude cannot be repeated, and must be synchronized with long term structural solutions.”
The power producer is without a permanent chief executive after the demands of the job wore down Phakamani Hadebe who quit the role citing poor health due to the strenuous demands of the company.
Hadebe was the utility’s 12th chief executive since 2007.
The group’s treasurer Andre Pillay also quit this month. The utility is facing serious financial problems with its debts approaching R500bn while also crippling with operational and structural problems.
Mboweni last week said a broad strategic framework in the form of a Green Paper will culminate in a White Paper that will deal with the future that government expects state-owned entities (SOEs) to play in a fast-changing micro and macro-economic environment.
Parsons said it would be important that the green and white papers address an overall strategy for the financing and restructuring of SOEs.