Eskom going to die slow death, warns economist

Eskom going to die slow death, warns economist

Efficient Group founder and economist Dawie Roodt said “Eskom is going to die a slow death” in response to the 2023 budget speech.

Finance Minister Enoch Godongwana presented the Eskom Debt Relief Bill in the budget, with the government taking over R254 billion of Eskom’s debt.

Godongwana said they are taking over Eskom’s debt for two reasons:

  • It will ease pressure on the company’s balance sheet, enabling it to invest in transmission and distribution infrastructure. This will allow Eskom to conduct the maintenance required to improve the availability of electricity.
  • R337 billion of Eskom’s debt is already government guaranteed. Explicitly taking on this debt will reduce fiscal risk and enhance long-term fiscal sustainability.

This effective bailout comes with conditions attached:

  • Eskom must prioritise capital expenditure in transmission and distribution.
  • Eskom must focus on the maintenance of its existing generation fleet to increase the energy available.
  • The relief is only to be used to settle debt and interest payments.
  • Eskom must implement the recommendations from an independent assessment of its operations which the Treasury has commissioned.

Roodt said while this was in line with expectations, it would not save Eskom.

Dawie Roodt, Efficient Group chief economist

What is needed is a “radical restructuring of Eskom, in terms of its finances and its operations”, said Roodt, which would include “firing a lot of people and the collection of municipal debt”.

Roodt also called on the government to “address the culture of non-payment” that is pervasive and hampers any attempt to save Eskom.

Tough choices are unlikely to be made so close to an election, and thus, Eskom “will probably die a slow death”.

This was not forthcoming in the budget speech, with the conditions for the debt transfer being insufficient to fundamentally alter Eskom’s trajectory, he said.

For Roodt, Eskom is “simply dying”.

Johann Els, chief economist at Old Mutual, agrees with Roodt.

Els said the Eskom debt conditions were “disappointing” and he would have preferred specific targets to be met before a debt transfer.

There is no real incentive for Eskom to fundamentally change its operations and finances under the current debt relief programme.

Sean Segar of Negroup Investments said the debt relief plan is merely “reshuffling deck chairs on the Titanic”.

In the medium to long term, electricity generation and distribution “will be privatised”, said Roodt.

This is echoed by other commentators such as Kokkie Kooyman, a finance sector expert at Denker Capital, who called the ANC policy “privatisation by stealth”.

While both Roodt and Els are skeptical of the Eskom debt transfer, they point out that the debt plan seems credible and, for Roodt, the minister “did as well as he possibly could”.

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