By Lehlohonolo Lehana.
The Minister of Finance Enoch Godongwana introduced the Eskom Debt Relief Bill in Parliament, which is a crucial step towards addressing the financial and operational challenges faced by power utility Eskom.
This Bill is a result of the government’s commitment to support Eskom in dealing with its debt obligations and the associated finance costs.
“Overall, the Eskom Debt Relief Bill is a significant step towards restoring Eskom’s financial stability and ensuring its long-term sustainability. This arrangement, subject to strict conditions, will relieve extreme pressure on the utility’s balance sheet, enabling it to conduct necessary investment and maintenance,” said the Treasury.
Two of the hallmark decisions under the Eskom debt relief initiative are the agreement for government to fork out R254 billion in relief over the next three years as well as writing off municipalities’ Eskom debt.
Conditional loans
In its latest explanatory note, the Treasury said that regarding the medium-term debt relief strategy, the funds will only find their way to the company once the bill is enacted into law.
Relief will be granted in the form of interest-free loans, meaning that Eskom will not be required to pay interest on the borrowed principal amount.
The lender provides the borrower with money without charging any additional cost for the loan. Some interest-free loans may have a repayment period, while others may be structured as a one-time payment, said the Treasury.
If Eskom meets the conditions, the loan can be repaid by issuing shares rather than making cash payments. However, failure to meet the specified conditions will result in repayment at market rates to the National Revenue Fund, said the authority.
The debt relief is also subject to stringent conditions, as proposed by Godongwana. Treasury said that these conditions would take effect when the bill is enacted, and the minister would be able to thereafter review and modify conditions at any time.
Municipal debt
The Treasury said that when it comes to the millions in outstanding municipal electricity debt, the relevant municipalities have been provided terms and conditions they must meet for their debt to be written off by Eskom.
“Under this initiative, municipalities that meet certain criteria may have a portion of their outstanding debt to Eskom written off. The debt write-off by Eskom will have no additional financial implications for the sovereign.”
“This is part of the government’s broader efforts to address the financial challenges faced by municipalities,” said the Treasury.
Treasury has previously made it clear that this is a separate support plan for municipalities.
After compliance with strict conditions, the Treasury will instruct the power utility to write off a third of the municipality’s arrears.
Read the full explanatory note here:Explanatory Note on the Eskom Debt Settlement Arrangement.