Durban - Finance Minister Enoch Gondongwana’s Budget speech has drawn mixed reaction from opposition parties, with many agreeing that it was the most practical approach given the country’s current climate.
The DA, however, contended that he could have done much more to encourage investment, pointing to a missed opportunity to introduce any meaningful structural reforms that could drive economic growth, incentivise domestic savings and protect vulnerable South Africans.
The party also argued that the Budget offered no solution to revitalise stateowned enterprises or address the energy crisis and criticised the announcement of bailouts for failed state-owned enterprises, including the Land Bank, Post Office and SAA.
DA spokesperson on finance Dion George also questioned the offloading of over R250 billion of Eskom’s debt on to the country’s sovereign balance sheet.
“This proposal is not only irresponsible, but it also lacks any coherent plan to restructure Eskom and address the energy crisis. In fact, this move will only serve to increase interest payments even further, without any incentive for Eskom to become more efficient,” said DA MP.
He, however, welcomed the crime-fighting efforts in bolstering institutions, such as the National Prosecuting Authority, Financial Intelligence Centre, Special Investigating Unit and SAPS, as well as incentives to provide for solar installations through introducing a tax rebate.
ActionSA’s Athol Trollip welcomed the move to introduce tax credits for private solar panel installation and to take over R254bn debt from Eskom to stabilise operations at the utility.
He added that the announcement around Eskom, private solar panel installation, and fuel tax relief for food producers should assist the country in dealing with the electricity disaster.
ActionSA, however, questioned the feasibility of mass solar installations by households in return for tax relief, saying many households couldn’t afford solar panels.
According to Trollip, raising the tax bracket in line with inflation and the announcement of no additional tax initiatives should provide welcome relief to already under-pressure consumers.
IFP deputy president and spokesperson on finance, Inkosi Mzamo Buthelezi described the Budget as a fair, balancing act which had taken into consideration the country’s challenges.
He said the party was encouraged by plans to assist law-enforcement agencies to deal with sophisticated crime networks.
Buthelezi said while the move to take over Eskom debt was welcomed, they had been hoping for a clearer plan on energy.
“The tax relief that comes with installing solar panels in households is just not practical when one considers that there is a significant number of RDP houses across the country which gives a picture of affordability,” said the IFP spokesperson.
Buthelezi welcomed the call for conditions to be attached for any money given to state-owned entities.
“We have been saying for ages that the problems with our state-owned entities lie in the manner that they are managed and unless that is attended to, they will continue to be this bottomless pit which we throw money into,” said Buthelezi.
The IFP said while the plan presented by Godongwana was appealing, the challenge was in the implementation.
University of KwaZulu-Natal academic Dr Ntokozo Nzimande described the Budget as realistic when compared to the conditions in which it was presented.
He added that the boosting of crime-fighting initiatives would only work when the agencies were no longer used to fight political wars.
ESKOM will not be spending capital on any greenfield projects for the next three years as part of the conditions attached to the R254 billion debt relief intervention provided by the government in a bid to turn the tide on the utility’s financial position.
Instead, the struggling power utility will focus on maintenance of the existing generation fleet to improve the availability of electricity, while additional new generation capacity will be derived from independent power producers and the southern African power pool.
These are some of the conditions attached to the large-scale debt relief arrangement announced by Finance Minister Enoch Godongwana yesterday during his Budget Speech in Cape Town’s City Hall.
According to the Budget documents, Eskom will have to focus on maintaining its existing power plants, and the only capital expenditure that may be undertaken for generation is required to relate to minimum emissions standards, flue-gas desulfurisation, and required maintenance.
The proposed debt relief has very strict conditions for Eskom, including restricting the power utility from using proceeds from the sale of non-core assets for capital and operating needs.
Eskom may also not implement remuneration adjustments, or golden handshakes, that would negatively affect its overall financial position and sustainability.
Godongwana said these conditions also required Eskom to prioritise capital expenditure in transmission and distribution during the debt-relief period, and for the company to focus on maintenance of the existing generation fleet to improve availability of electricity.
“We are acting decisively to bring additional capacity on to the grid. We are also working to transform the electricity sector to achieve energy security in the long term,” Godongwana said.
“We also require that the debt relief be used to settle debt and interest payments only, and that Eskom implement the recommendations emanating from an independent assessment of its operations, which has been commissioned by the National Treasury.”
Treasury has appointed an international consortium with extensive experience in the operation of coal-fired power stations to review all plants in Eskom’s coal fleet and advise on operational improvements.
The consortium consists of VGBE Energy, Dornier Power, KWS Energy, RWE Technology, and Steag Energy.
Its review is scheduled to conclude by mid-2023, and Eskom is required to implement the operational recommendations emanating from this independent assessment.
Godongwana made good on his promise for the government to shoulder at least two-thirds of Eskom’s debt burden by announcing a staggered R254bn debt relief arrangement over the next three years to pay down Eskom’s R423bn debt and interest payments.
He said the debt relief proposed would provide about R168bn in capital and R86bn in interest over the three years, adding that Eskom would not need to engage in further borrowing during the relief period.
The debt plan is contingent on electricity tariffs which the energy regulator has approved and measures to address R56.3bn in municipal debt arrears.
“We are doing this for two reasons: Firstly, doing so will ease pressure on the company’s balance sheet, enabling it to invest in transmission and distribution infrastructure,” Godongwana said.
“It will also allow Eskom to conduct the maintenance required to improve the availability of electricity.
“Secondly, R337bn of Eskom’s debt is already government-guaranteed. Explicitly taking on this debt will reduce fiscal risk and enhance long-term fiscal sustainability.”
The government has conceded that the lack of reliable electricity supply is the biggest economic constraint, with economic growth forecasts slashed downwards.
Record levels of load shedding were experienced in 2022, with 207 days of rotational power cuts compared with 75 days in 2021, owing to frequent unplanned breakdowns at Eskom’s coalfired power plants.
This year looks set to experience another record-high number of power cuts, as the total hours of load shedding increased from 1 165 in 2021 to 3 782 in 2022.
North-West University Business School economist Professor Raymond Parsons said the success of the Eskom debt-relief programme would be the difference it makes to stem the energy crisis.
“While the substantial debt-relief arrangement for Eskom is inevitable, it must be implemented in a way that overcomes the causes of the current malaise and supports the rapid development of the power sector as a whole to meet the critical supply and environmental problems being faced,” Parsons said.