At this point, Madam Speaker, let me now clarify the role of the fiscus in relation to
Eskom’s financing requirements.
Eskom was initially structured as a non-profit utility to be financed entirely by debt. For
the first seven years after it was formed in 1923, it was capitalised by government
advances totalling £8 million, subsequently converted into treasury loans with terms of
up to 40 years. The framework has changed since 2001 – Eskom is now a corporation
owned by the state, and its tariffs are subject to oversight by an independent regulator.
But the underlying principle throughout Eskom’s history has been that electricity users
should bear the costs of its supply, with capital financed through retained earnings and
debt on market-related terms. Our public expenditure on electrification has been
explicitly targeted at subsidising the extension of supply to low-income consumers, and
not at providing finance for the utility itself.
Now that Eskom once again has a major investment programme to finance, its capital
should again mainly be raised through debt, and paid for by users over the course of
time through appropriately structured tariffs.
However, Eskom’s tariffs were steadily reduced in real terms during the 1980s and
1990s, so that electricity prices in South Africa are now far lower than in any other
comparable country, and well below full economic cost. The tariff structure is now too
low to support the required borrowing.
Over the next few years, while new power stations are being built and tariffs are steadily
increased and revised to encourage efficient electricity use, Eskom’s balance sheet will
be under some stress. It is therefore proposed that up to R60 billion should be provided
to support the financing of Eskom’s investment programme, on terms structured to
assist in meeting cashflow requirements. Madam Speaker, the House should record
and the nation needs to know that this is not a grant. The return on an investment in
power generation is very long term, and the repayment of debt must be similarly
deferred. But we would not be supporting these investments if we were not confident
that they are economically and financially viable.
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The amount of R60 billion will be required over the next five years, and we anticipate
that about R20 billion will be drawn over the MTEF period ahead. This is provided for in
the contingency reserve.
We are also setting aside R2 billion over the next three years to support programmes
aimed at encouraging more efficient use of electricity, generation from renewable
sources, installation of electricity-saving devices and co-generation projects. Intensive
work over the next few months is needed to give content to these proposals, so that
allocations for this year can be included in an Adjustments Appropriation.