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Financial rescue to debt-ridden South African parastatal Eskom

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By Ashok Ramsarup :: The South African government has come to the rescue of the cash-strapped parastatal Eskom. Finance Minister Tito Mboweni made the announcement at a special Appropriation Bill before the National Assembly today.

Minister Mboweni had been vocal that the electricity public utility was the important pulse of the country’s economy.

Earlier, the Minister stated in his Budget Vote for the National Treasury that the power utility presented the biggest risk to the fiscal framework because of the financial dilemma thatnegatively impacts on the fiscus.

“The government is working towards stabilizing the utility, whilst devising a broader strategy for its future, alluding to the fact in no uncertain terms,” Mboweni said.

Mboweni told the National Assembly that an additional 59-billion Rand bail-out would be given to the ailing Eskom to help the debt-ridden power utility meets its financial obligations in the current and next financial years.

He said the special bill would provide funding from the National Revenue Fund to allocate an extra 26-billion Rand for the 2019/20 and 33-bilion Rand for the 2020/2021 financial years respectively.

Mboweni said the current financial problems faced by the utility had been exposed  to high levels of liquidity and balance sheet risks as well operational challenges, which was caused to a large degree by governance challenges that the entity previous experienced.  “This ultimately led to a decline in investor confidence,” he said.

Mboweni reminded the House that the announcement comesat a significant cost to the fiscus and the South African taxpayers which would increase the government borrowing requirement for the 2019/20 fiancial year.   He also said Eskom’s debt reliantliquidity situation was a result of the poor interest coverage of its revenue and the high salary burden of employees.

According to Mboweni , a number of options had been considered as the solution to Eskom’s debt challenges  to ensure its sustainability. But he said, it would include the restructuringof Eskom that would be done in collaboration with the rating agencies.

One of the issues the Finance Minister raised was the creation of higher transparency across the value chain and reducesopportunities for fraud, corruption and rent-seeking. Mbowenisaid the positioning of the electricity was paramount to embrace clean technology and diversifying the generation of electricity across a multitude of power producers,  thus  reducing the country’s reliance on a single supplier.

Mboweni  was now hoping that the Bill would be  considered by the Standing Committee on Appropriations.

Ashok Ramsarup is award-winning senior journalist of South Africa 🇿🇦 

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