South Africa will significantly increase public borrowing to relieve two-thirds of Eskom’s debts as the struggling state electricity monopoly imposes the worst rolling blackouts yet in Africa’s most industrialised nation.
Cyril Ramaphosa’s government will finance R254bn ($14bn) of relief for Eskom’s R400bn debt through bailouts and the direct takeover of some loans over the next three years.
“The lack of reliable electricity supply is the biggest economic constraint” on South Africa and the debt relief would enable Eskom to spend more money on maintaining malfunctioning power stations at the core of the crisis, said finance minister Enoch Godongwana, as he delivered the annual budget.
Eskom will have to meet “strict conditions” on better power-station performance to access the relief, he added. Most of Eskom’s debt was already issued under government guarantee.
This week Eskom hit a record for breakdowns at ageing coal plants that provide the bulk of South Africa’s power. Many analysts and businesspeople regard the plants as increasingly irreparable, given enormous corruption in Eskom under the ruling African National Congress.
The power cuts reached an unprecedented 7,000 megawatts on Tuesday evening, nearly a quarter of the country’s electricity demand and surpassing previous outages of about 6,000MW, according to Eskom figures.
Ramaphosa has already declared a state of disaster over the rolling cuts, which are designed to stave off a total collapse of the country’s electricity supply and leave households and businesses without power for up to 12 hours a day, interrupting everything from crop irrigation and mining to ice-cream shop freezers.
The escalation of “load shedding” this week signals how rapidly Eskom’s power plants are collapsing despite the government’s race to fix the utility’s finances and approve private power projects to secure more power.
The state will cover R184bn of Eskom’s debt payments as they fall due in the next three years and take over R70bn of the debt directly at the end of that period, South Africa’s National Treasury said.
The Treasury said that the extra R118bn in state borrowing needed for these measures “will require a step change in public debt”, which will stabilise later than planned at just below 74 per cent of gross domestic product in 2025-26. Earlier, public debt had been forecast to fall to 70 per cent by 2025-26.
While South Africa’s fiscal deficit is expected to fall over this period, by 2025-26 the government is forecast to spend nearly a fifth of its budget revenue on servicing debt, up from 18 per cent currently, Godongwana said. “These are resources that could otherwise be used to address pressing social needs or to invest in our future,” he said.
“While long expected, the [Eskom debt takeover] announcement will now happen in the context of a perceptible negative shift in sentiment,” said Razia Khan, chief economist for Africa and Middle East at Standard Chartered.
Eskom was battling infiltration by several organised-crime cartels but the state was still failing to tackle “entrenched” corruption, André de Ruyter, the outgoing chief executive who survived an alleged assassination attempt, told local media on Tuesday.
De Ruyter, who announced his resignation in December after the energy minister accused him of treason, told eNCA TV that the ruling party lacked a long term plan for Eskom.
The ANC “want what will win them the next election — not what will keep the country going for the next two decades”, said de Ruyter. He is due to step down next month.