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Reports that National Treasury is working on a plan to absorb a significant share of Eskom’s R400 billion debt are not only concerning but are setting up a very expensive precedent on the management of debt in failing State-owned Enterprises (SOEs).

The DA finds it unacceptable that, after years of ANC sponsored corruption and mismanagement of Eskom, the South African taxpayer is now being asked to reward Eskom for its failures through a debt subsidy.

Current Eskom debt is hovering around R390 billion. Eskom has stated that debt servicing will only be sustainable at R200 billion, signaling that an almost R200 billion bailout is required. The DA has warned that a bailout by the State of this size will pose a severe risk to South Africa’s already fragile sovereign debt profile. Thus far Eskom has been provided with R136 billion to pay off its debt, with a further R88 billion guaranteed until 2025/26.

The International Monetary Fund (IMF) warned that Eskom’s operational and debt problems have raised macro-critical challenges for the South African economy and reported that any solution to Eskom’s debt must be preceded by concrete and credible actions. Additionally, the IMF has warned that shifting Eskom’s debt onto the State’s balance sheet would precipitate a marked deterioration in the nation’s already stretched finances.

Gross State debt had already increased from R2.5 trillion to R4.3 million in just the past 5 years. Consequently, skyrocketing debt and debt-service costs have become the fastest-growing expenditure line item in the budget, to the detriment of those who are dependent on the State. Amidst a failing economy government needs now to alleviate the pressure on hard working taxpayers and the most vulnerable.

It is wholly naïve to think for a moment that another bailout is an appropriate solution to address the structural problems that beset the utility. Treasury absorbing up to half of Eskom’s debt will not only set a dangerous precedent for other failing SOEs, but will risk flinging South Africa back to junk status as soon as the announcement is made to do so.

The DA is currently working on a Fiscal Responsibility Bill that will prevent what Treasury is trying to do with Eskom debt. The Bill introduces, for the first time in South Africa, a limit on how much government will be able to borrow. This Bill will not permit reckless financial behaviour by the State that National Treasury is unable to contain.

Finance Minister Enoch Godongwana is set to unveil a proposal for Eskom’s unsustainable debt during his Medium-Term Budget Policy Statement in October. Any proposal for the State to take on more of Eskom’s debt will have to be subject to normal budgetary processes. This will include incorporating the proposal into the national fiscal framework in addition to being approved by the Finance Minister, Cabinet, and Parliament.

Throughout this process the DA will reject any plan that will entail allocating Eskom’s debt to the State’s balance sheet.

Issued by Dr Dion George MP - DA Shadow Minister of Finance