A general view of the headquarter of the embattled South African main electricity provider ESKOM is pictured on February 4, 2015 in Johannesburg. South Africa power supply was under “extreme” pressure on February 2, 2015 and likely to remain so until end of the week after a technical fault at the country’s sole nuclear plant, electricity utility Eskom said. AFP PHOTO/GIANLUIGI GUERCIA (Photo by Gianluigi GUERCIA / AFP) (Photo by GIANLUIGI GUERCIA/AFP via Getty Images)

South Africa is to take over more than 60 percent of the debt of struggling power utility, Eskom Holdings over the next three years as the government seeks to banish an energy crisis that has crimped growth and threatens the country’s credit ratings.

Finance Minister Enoch Godongwana told parliament yesterday that the government will take over R254 billion of Eskom’s R422 billion debt to help the parastatal recover from a decades long crisis that has led to record power shortages.

“The goal is to strengthen the utility’s balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support security of electricity supply,” Godongwana said in the country’s 2022/23 budget delivered in Cape Town.

South Africans endured 207 days of blackouts in 2022 – the most on record – and have been short of power everyday this year as Eskom battled plant breakdowns and run short of money to buy diesel.  Currently Eskom is 6,000 megawatts below the target needed to avoid loadshedding and requires new generating capacity to meet the deficit.

Godongwana said in his 2023 Budget that government will take on the debt in two components. The first includes servicing R184.4 billion of Eskom’s debt which will consist of capital repayments and interest payments. That will be followed by the government taking over a maximum of R70 billion of Eskom’s debt by switching selected debt instruments into government debt.

Eskom will be provided with advances of R78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26. The National Treasury says the advances are meant to cover capital and interest payments as they fall due and should only and will be strictly used for that purpose.

Godongwana says the lack of reliable electricity supply is the biggest economic constraint facing the country.

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“In response, we are acting decisively to bring additional capacity onto the grid. We are also working to transform the electricity sector to achieve energy security in the long-term,’’ he said. “We are doing this for two reasons: Firstly, doing so will ease pressure on the company’s balance sheet, enabling it to invest in transmission and distribution infrastructure. It will also allow Eskom to conduct the maintenance required to improve the availability of electricity.’’

Under the deal, Eskom will be required to:

  • prioritise capital expenditure in transmission and distribution during the debt-relief period.   
  • focus on maintenance of the existing generation fleet to improve availability of electricity.
  • that the debt relief be used to settle debt and interest payments only. 
  • And that Eskom implement the recommendations emanating from an independent assessment of its operations, which has been commissioned by the National Treasury.

The Government also says Eskom has an obligation to ensure that it implements key reforms to address the inadequacies of the transmission network and performance of existing power stations. Eskom, the National Treasury and the Department of Public Enterprises have agreed to design and build transmission infrastructure that will allow for extensive private-sector participation.

The government has also appointed an international consortium to help Eskom run its coal-fired power stations and to review all its plants.