23 July 2019
Finance Minister Tito Mboweni proposed additional funding of R59 billion over the next two financial years when he introduced the Special Appropriations Bill during a sitting of the National Assembly on Tuesday.
“Although government has committed R23 billion to be allocated to Eskom over the next three years, Eskom’s funding plan is dependent on their ability to raise additional financing from the market, which in turn requires them to be a going concern.
“It is therefore important to note that the proposed financial support for 2019/20 and 2020/21 financial years addresses the going concern status and enables Eskom to honour its obligations.
“Therefore the special appropriations bill requests approvals of additional financial support for Eskom as follows: an additional R26 billion in 2019/20 financial year and… R33 billion in the 2020/21 financial year. However, the future sustainability of Eskom will have to address the debt and the restructuring of Eskom,” Mboweni said.
After a vote, the 226 Members of Parliament (MPs) voted in favour of the appropriations bill being read for the first time, while 90 voted against the bill being read.
This budget takes from services the poor need to fund the costs incurred by State Capture
Speech by Geordin Hill-Lewis MP, DA Shadow Minister of Finance in Parliament’s Appropriation Bill Debate.
Parliament has a duty to actually engage with the budgets it is asked to pass by the Executive.
It is not a rubber stamp.
If we are concerned about the size of the national debt, we have the power to change it.
If we are concerned about cuts to basic services, we have the power to change it.
Parliament has not taken this responsibility seriously this year. It has rushed through the budget votes, and held only one day of public hearings.
We have spent a month on this budget, 34 budget debates and 32 committee meetings. We’ve collectively spent at least 160 hours debating this budget. In all of this Parliament has not come up with a single amendment. Not one.
After all of that, our collective position is that we agree with every Rand of the Executive’s budget proposals.
This is not the work of an active Parliament. It is the work of a rubber stamp.
“Bail out Budget”
So today we are being asked to pass a “bail out budget” that includes deep cuts to basic services for the poor, in order to fund another bailout for Eskom.
Where is it coming from?
When the ANC votes ‘yes’ to this budget, they will be voting ‘yes’ to:
- a R2.4 billion cut from public transport for the poor, to bailout Eskom
- a R1.3 billion cut from Social Development, including cuts to the number of social workers, to bailout Eskom
- a R918 m cut from the municipal infrastructure grant, to bailout Eskom
- a R686 m cut from Health, to bailout Eskom
- a R312 m cut from Police, to bailout Eskom
- a R300 m cut from Housing, to bailout Eskom
Next time you hear the ANC speak about its care for the poor, or even its commitment to a developmental state, just read this ‘bailout budget’ and see what a lie it is.
Nearly every basic service on which the poor rely will be cut to fund this bailout budget.
The DA’s Amendments
The ANC in the Appropriations Committee also rejected the amendments offered by the DA, to redirect money from wasteful and unnecessary programmes back to basic services.
We proposed 8 amendments, all of which were budget neutral.
- We proposed an extra R2 billion for the Police budget, including an additional R200 m allocation to IPID to help fight corruption in the police and build an honest, professional police service; an extra R500 m to the Visible Policing budget for rural policing; and R1.3 billion to the training of Specialised Units within the SAPS. The ANC rejected these amendments.
- We proposed a R1.5 billion allocation for Basic Education to fund specialisation schools teaching science, technology, engineering and mathematics. The ANC rejected this amendment.
- We proposed a R1.5 billion allocation in the Labour vote, with a dedicated fund to re-skill workers who lose jobs in the mining sector. The ANC rejected this amendment.
- We proposed an additional R3.4 billion allocation to the Department of Health, including a dedicated R450 m fund towards a mental health programme to ensure that the horror of the Life Esidimeni tragedy is never repeated again. The ANC rejected this amendment.
- We proposed a R3 billion allocation for desperately needed equipment in hospitals. This would include incubators for new born babies, radiotherapy machines for cancer patients, and other essential health equipment. The ANC rejected this amendment.
That is the truth of this budget. It is a budget which takes directly from the services the poor needs most, to fund the costs and the debts incurred by state capture at Eskom.
It is a bailout budget, with the poor doing all of the bailing out. This budget should be rejected.
Minister Tito Mboweni: Special Appropriation Bill to provide additional financial support to power utility
I am pleased to present the Special Appropriation Bill to provide additional financial support to Eskom for the current and next financial year.
On 11 July 2019, I stated in my Budget Vote 7 for the National Treasury, that Eskom presents the biggest risk to the fiscal framework because of its financial problems and negative impact on the economy. Given the high risks of a systemic failure if Eskom were to collapse, government is urgently working on stabilizing the utility, while developing a broad strategy for its future.
Eskom faces serious financial and operational challenges, which to a large extent were caused by the governance challenges that the entity previously experienced which resulted in a decline in investor confidence.
Eskom is not financially sustainable based on its current high levels of debt and its inability to generate sufficient revenue to meet its operational and capital obligations, which exposes the entity to high levels of liquidity and balance sheet risks. Therefore, without major changes to Eskom’s business model and financial assistance being provided by Government, the company will be unable to meet its financial obligations through the 2019/2020 financial year. At a strategic level, we must thus face the reality that a large, vertically integrated energy company is an outdated model in a changing industry, both domestically and internationally.
Honourable Members should also be reminded that the fiscal support we are announcing today will come at a significant cost to the fiscus and to South African tax- payers. In addition to the financial support to Eskom, there is also a preliminary indication that tax revenue could be significantly lower than budgeted for in the 2019 Budget.
This could substantially increase the government borrowing requirement for 2019/10, which will require government to revise its funding strategy and current weekly bond issuance levels before the MTBPS in October.
It is important that the House notes that Eskom’s debt reliant liquidity situation is a result of the poor interest coverage of its revenue, the decline in sales volumes year- to-date, as well as the cost of primary energy, high employee costs and the continuing cost escalations of the new build programme due to its persistent delays. This situation has resulted in Eskom having to borrow increasing amounts to service its debt obligations, placing the entity in an unsustainable position.
Although Government has committed R23 billion to be allocated to Eskom over the next 3 years in the current fiscal framework, Eskom’s funding plan is dependent on Eskom raising additional finance from the market, which in turn requires Eskom to be a going concern. It is therefore important to note that the proposed financial support for 2019/20 and 2020/21 financial years addresses the going concern status and enables Eskom to honour its obligations.
Therefore, this Special Appropriation Bill request approval for additional financial support for Eskom as follows:
a. Additional R26 billion in 2019/20 financial year; and
b. R33 billion in the 2020/21 financial year.
However, the future sustainability of Eskom will have to address the debt and the restructuring of Eskom.
In this regard, I must inform the House that a team of officials led by the Director- Generals of National Treasury and Public Enterprises have considered a number of options as a solution to the company’s debt challenge in order to ensure its sustainability, and the most viable of these will be communicated in due course. The Chief Restructuring Officer, who will be appointed shortly, will be mandated to test these options with the ratings agencies to establish what impact each will have on the fiscus and recommend the appropriate one for implementation.
National Treasury in consultation with the Department of Public Enterprises have developed the terms of reference and scope of work for a Chief Restructuring Officer and I will be making the appointment soon.
I wish to repeat what I said in my Budget Vote Speech: “We really and truly cannot go on like this”. Therefore, it is important that Government urgently implements the restructuring of Eskom into three entities – Generation, Transmission and Distribution. Separating Eskom will have numerous benefits such as:
– Allowing strong parts of the business to raise funding more cheaply;
– Creating higher transparency across the value chain and reduce opportunities for fraud, corruption and rent-seeking;
– Creating clear performance incentives in each business;
– Reducing systemic risk South Africa faces by having one very large entity, where problems in one part of the electric value chain now affect the entire value chain. Instead, it will isolate problems and deal with them where they arise, without compromising the entire system;
– Positioning the electricity sector to embrace clean technology, distributed generation and respond to other industry changes;
– Reducing support required from the government in the form of capital outlays and sovereign guarantees, mainly due to increased private sector participation and funding over time;
– Generating competition in the electricity market that is expected to drive improvements in efficiency and put downward pressure on prices;
– Providing open access to the grid and remove conflicts of interest to the procurement of power, both conventional and renewable, from IPPs;
– Diversifying the generation of electricity across a multitude of power producers, thereby reducing the country’s reliance on a single supplier; and
– Providing a stable platform for transparently contracting least-cost and most secure power.
However, failure to strengthen Eskom’s balance sheet urgently while the Government is working on long term sustainable solutions may likely have a negative systemic impact as Eskom is the largest non-bank corporate debt issuer in South Africa and any default will result in a crisis for Government and to some South African banks given that Eskom is the largest exposure to some banks and Government.
As I conclude, Honourable Speaker, let me remind members that government remains committed to supporting and strengthening Eskom in order to ensure that the entity achieves business and financial sustainability and maintains adequate liquidity levels to continue operating as a going concern and ensure the security of electricity supply.
However, without major changes to Eskom’s business model, the company will not be financially sustainable and may not be able to ensure security of electricity supply beyond the medium-term, with significant consequences for the economy. The frequency of the power shortages has risen in recent years, and government needs to act boldly and decisively. We are therefore committed to a significant reform agenda for the entity.
Honourable Speaker, I hereby table the Special Appropriation Bill for consideration by Parliament and I look forward to a constructive debate.