Eskom will come right, Gigaba believes

Eskom sales growth will be flat over the medium term, acknowledges Finance Minister Malusi Gigaba. He believes government’s interventions in the management of the embattled state-owned entity will be enough to turn its tide. He did say that if things went wrong the fiscus and the country could not afford to bail it out – again.

The largest state guarantee provided by the state, R350 billion, supports Eskom’s capital investment programme, the minister reported in the medium-term budget policy statement on Wednesday.

“Eskom is experiencing financial turbulence because of weak governance. This has led to a qualified audit opinion and a violation of some debt covenants with lenders,” the minister admits.

Indeed, the entity itself forecasts that electricity sales growth over its planning period will be flat, with revenue growth secured through tariff increases.

“However, the National Energy Regulator of South Africa could grant tariff increases below Eskom’s application, as it did during the multi-year price determination process for April 2013 to March 2018. There are also risks that sales growth will perform below projections or decline as households and businesses improve their energy efficiency.”

If this happens, Eskom will likely apply for even steeper tariff increases, the minister warns.

The treasury had extended its R350 billion guarantee from 31 March 2017 to 31 March 2023 because of delays in Eskom’s capital investment programme. “The extension of the guarantee will allow Eskom to use the remaining portion to complete its planned capital expenditure programme,” he reported.

The Eskom board had developed a plan to address governance concerns that they would share with lenders. The regulator is expected to rule on Eskom’s application for a tariff increase for 2018/19 shortly.

The minister – and his director general – were optimistic that revenue improvement and cost management “could allow the utility to cover all its obligations without fiscal support”.

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