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Eskom Set to Resume Borrowing with a Focus on Sustainable Debt Levels

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Eskom, South Africa’s power utility, is ready to resume its borrowing programme, but with a clear commitment to maintain its debt levels at sustainable levels. This decision comes after the completion of the government’s R254 billion debt relief programme, which imposed a ban on new borrowing. As the current fiscal year comes to an end, Eskom is now preparing to restart its financial activities, with a focus on long-term sustainability.

Despite the challenges it has faced, Eskom is determined to keep its borrowings below the R300 billion mark by the end of the financial year ending 31 March 2030. This represents a reduction from the current R411 billion in outstanding borrowings. In a recent presentation to the parliamentary portfolio committee on energy and electricity, Eskom emphasized its commitment to managing its financial position responsibly.

Five years ago, former Eskom CEO André de Ruyter called for a significant reduction in Eskom’s debt, suggesting that halving the debt to R200 billion would be key to the utility’s long-term sustainability. While Eskom’s current plan does not reach this target, the focus is firmly on reducing its borrowings to a more manageable level in the coming years.

Eskom’s Financial Recovery and Future Plans

Eskom’s financial recovery has been evident in its improved performance over the past year. The first nine months of the current financial year saw a marked improvement, particularly in the reduction of load shedding, which helped increase sales volumes by 3.6%. Coupled with a 12.74% tariff increase, Eskom reported a 16% rise in revenue. Notably, its profit before tax improved from a loss of R10 billion in the previous year to a R34 billion profit by December 2024.

In line with its recovery, Eskom’s financial strategy includes a capital expenditure plan of R321 billion over the next five years. A significant portion of this expenditure will go towards generation (R140 billion) and transmission (R133 billion). These investments will help Eskom transition towards new sources of energy, including renewable and gas projects, as part of its long-term vision for a more sustainable energy future.

Challenges Ahead: Municipal Debt and Revenue Concerns

While Eskom’s financial outlook shows signs of improvement, there are still significant challenges. The growing municipal debt remains a key concern. At the end of March 2025, Eskom reported that municipal debt had grown by 33% to nearly R100 billion. This mounting debt is a result of poor payment collections from municipalities, many of which have fallen behind on their obligations.

In response, Eskom CEO Dan Marokane stated that the utility had accepted that the National Treasury’s municipal debt relief plan has largely failed. Eskom is now pushing for stricter compliance from municipalities, including mandatory Distribution Agency Agreements, which would allow Eskom to directly manage the distribution, billing, and collection of revenues in these municipalities.

Additionally, Eskom is seeking to ensure that the government’s payments for free basic electricity are paid directly to the utility to prevent municipalities from diverting these funds for other uses.

Eskom’s Debt Strategy and Sustainability

Eskom’s financial recovery plan reflects a combination of caution and ambition. While the utility is ready to resume borrowing, it is clear that the focus is on sustainable debt management. Eskom aims to balance its need for capital investment with the need to reduce its overall debt burden, ensuring that it remains financially stable while working towards improved service delivery for South Africa’s energy needs.

As Eskom navigates these challenges, transparency and communication with creditors and markets will be key to ensuring that its recovery plan is effective and that it can avoid past financial pitfalls. For now, the focus remains on reducing debt, improving operations, and delivering energy stability for the country.

By strategically managing its debt and focusing on long-term sustainability, Eskom is setting a course for financial recovery. The journey will be complex, but with careful planning, the utility can secure its position as a sustainable player in South Africa’s energy sector.

{Source: The Citizen}

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