The stand-off between Eskom and the National Treasury over funding for diesel has ended with an agreement that government will support Eskom borrowing from commercial banks, should it be unable to reprioritise its own resources.
Eskom said in December that it had ran out of funds to purchase further fuel after spending R12 billion, exceeding its yearly budget by more than 100%, with four months left in the fiscal year.
Eskom can only feasibly burn up to R2.5 billion of feedstock every month due to logistical limitations on the amount of fuel it can transport to the open-cycle gas turbine units. This would give it the ability to cut load shedding by two stages during peak hours for around six hours each day. Eskom has been pushed to identify internal savings in addition to the projected loans. It was able to set aside R1 billion in January from its own funds for diesel.
However, Godongwana is anticipated to propose a significant debt reduction for Eskom in his budget next month. It has been unable to access funding in the financial markets due to its R400 billion debt, which was mostly accumulated during the construction of its two newest power units, Medupi and Kusile. In October, Godongwana declared he would transfer one-third to two-thirds of the amount to the government’s own balance sheet. According to him, the sum would be decided by the extent of the tariff rise Eskom received from the South African National Energy Regulator (Nersa).
Eskom received one of the greatest increases ever from Nersa in December, totalling 18.6%. Although Eskom has been advised by President Cyril Ramaphosa that the whole sum should not be imposed right away, Eskom is legally unable to comply and must follow the regulator’s judgment.
Although Nersa did once lower its ruling at Eskom’s request, the regulator is currently hesitant to change the regulated pricing without a court judgment.
Eskom must first pay off its debt before it can be divided into three entities that would handle generating, distribution, and transmission. Eskom will be able to borrow money again and undertake large investments, notably in the transmission network, thanks to the unbundling and debt relief.