S. Africa Readies Eskom Bailout, Lifts Tax to Stem Blackouts

South Africa’s government will give Eskom Holdings SOC Ltd. a 10 billion rand ($876 million) bailout by June and raise electricity levies to curb demand as it seeks to tackle a power crisis that’s hobbling mine and factory output.

Eskom will receive a further 10 billion rand by December and a final 3 billion rand payment next year, once funding has been raised through the sale of state assets, Anthony Julies, a deputy director-general in the National Treasury, said on Wednesday in Cape Town. He declined to give details of which assets will be sold or whether advisers have been appointed to help with the disposal.

“It is on track,” Julies said. “It is market-sensitive. We have discussed it with all the relevant stakeholders. We will not transfer anything if the cash is not there. It will have no implications for the budget.”

Eskom, which supplies 95 percent of South Africa’s power, turned to the government for support to build new plants and maintain existing ones when confronted with a 225 billion-rand cash flow in the five years through March 2018. The National Treasury first announced plans to sell “non-core” assets in September and Finance Minister Nhlanhla Nene said in October details would be revealed in the budget.

Debt Guarantees

The electricity utility has 350 billion rand of debt guarantees from the government, and would have used up 144.5 billion rand of that by the end of next month, according to the Treasury. The government is also considering converting a 60 billion-rand subordinated loan to Eskom into equity.

“Eskom still has borrowing capacity,” Nene said in an interview in Cape Town. “We want to repair their balance sheet, we want to make sure that there is certainty with regards to them being able to get cost-reflective tariffs, because it is there where their ability and capacity to raise funding lies.”

Eskom plans to invest 138 billion rand in the three years through March 2018 to address generation and distribution deficits that have led to rolling blackouts, according to the Treasury.

An electricity levy will be raised by 2 cents to 5.5 cents per kilowatt-hour to curb power demand, Nene said.

“It is a behavioral tax, not necessarily to raise funds,” he said. “It will be phased out when the energy crisis abates,” or when new carbon taxes are implemented next year, Nene said.

Increase Supply

Measures to increase supply include purchasing as much as 2,500 megawatts of coal-generated power from independent producers and 3,136 megawatts from gas-fired plants from 2020, the National Treasury said in the budget review. The government also plans to import 2,609 megawatts of hydropower and buy 1,100 additional megawatts of renewable energy from independent producers locally.

“Government has also initiated discussions with several potential partner countries to explore nuclear power production,” the Treasury said. “Like any substantial long-term investments of this magnitude, proposals would be subject to rigorous feasibility, affordability and environmental-impact assessments.”

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