Nene confirms R23bn Eskom lifeline

In addition to a R23 billion lifeline to Eskom, government may also convert its subordinated loan to the embattled electricity supplier to equity, the National Treasury said as Finance Minister Nhlanhla Nene tabled his 2015/16 budget in the National Assembly on Wednesday.

“Government could also consider other interventions such as converting its subordinated loan to equity to support Eskom’s budget sheet,” Treasury said in its budget review document.

This would free Eskom from its long-term obligation to service its debt to the state and pay interest on the loan that runs until 2038, easing the entity’s balance sheet and enabling it to borrow more capital elsewhere.

Converting the loan to equity, would carry the lesser obligation for Eskom of paying the shareholder a return in the form of a dividend when its financial situation improved and allowed it to do so.

Nene confirmed that, as President Jacob Zuma noted in his state-of-the-nation address a fortnight ago, government was braced to give Eskom R23bn in the coming year to stabilise its operations.

Treasury added that this would in part be achieved through the sale of “non-core assets” to ensure that there was no increase in government debt and “no effect on the fiscal position”.

In his budget speech, Nene said the sum would be paid in three tranches, in accordance with a special appropriations bill to be tabled. “The fiscal allocation of R23bn will be paid in three instalments, with the first transfer to be made by June 2015.”

He confirmed that government would support a tariff increase application by Eskom seeking to bring the price of electricity in line with generation costs.

Nene also proposed tax measures to promote electricity efficiency, including a temporary increase in the electricity levy from 3.5 cents per kilowatt hour (c/kWh) to 5.5c to assist in demand management.

“The additional 2c/kWh will be withdrawn when the electricity shortage is over.”

The second proposal was for an increase in the energy-efficiency savings incentive from 45c/kWh to 95c/kWh.

“Other measures under consideration included enhancing the accelerated depreciation for solar photovoltaic renewable energy.” Nene said the proposals would be discussed with industry, Eskom, the National Energy Regulator of SA, and other interested parties.


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