Minister open to Eskom’s green deal

• It must be within debt envelope, Godongwana says of bid for R180bn in concessional financing

Finance minister Enoch Godongwana says Eskom’s proposed green transaction looks possible at first glance, if the additional debt taken on remains within the envelope of existing government guarantees.

Godongwana, who has been in the job for less than three weeks, said the proposal has not yet reached his desk or been explored in any detail by the Treasury, which would be required by lenders to guarantee debt raised through the facility.

Eskom CEO André de Ruyter has set his sights on a “just transition” transaction for Eskom in which some of its coal-fired plants are retired earlier than the timetable contained in the Integrated Resource Plan and replaced with 7,400MW of newly built renewable energy.

A “just transition” refers to a socially managed and agreedupon path to decarbonise the economy, taking care not to leave communities and employees from the carbon economy stranded as fossil fuels are phased out.

However, this would require Eskom to take on more debt. De Ruyter hopes to raise a facility of R180bn in concessional financing from international development financing institutions, including the World Bank, the New Development Bank and French and German government institutions.

The full sum would not be required at once, and De Ruyter proposes that amounts are drawn down, based on progress in making the transition.

Eskom’s debt burden is already too large for its balance sheet and it has been unable to service it without government transfers for several years.

Since his arrival, De Ruyter has been working at reducing the debt burden, cutting the borrowing programme and using government transfers to pay down debt as it matures. It ended the 2020/2021 year with debt of R401bn, which it reduced from a high point of R483bn earlier in the year. Eskom has Treasury guarantees worth R350bn, which were provided to back the financing of the construction of Medupi and Kusile.

“My understanding is that there’s an envelope of existing guarantees for Eskom.

“The extent to which Eskom operates within that envelope, I don’t see major problems in that regard,” Godongwana said in an interview.

“I don’t know whether part of

those guarantees will be needed to refinance existing debt. I can t answer these questions until ’I have a better understanding of how the debt is structured.”

Eskom CFO Calib Cassim said in response to questions that R40bn in guarantees was available as at March 31.

Since the first quarter, the quantum of debt has declined further as more has matured and Eskom has not raised much additional debt. As more debt matures, more guarantees could be freed up.

De Ruyter has said that he hoped to get a green transaction in place by the time COP26 is held in November, in order to be at the front of the queue.

Cassim said that Eskom “was working flat out to secure the transaction. We have the full support of the department of public enterprises, but obviously we have to get Treasury on board as I cannot see how we would get such a facility without a Treasury guarantee.”

Cassim said raising more debt was a critical balance.

“We don’t want to go back to a debt level that puts us way into the red. The debt ratios are turning around, so I am very cognisant of what a green transaction would do,” he said.

The head of Eskom’s just energy transition, Mandy Rambharos, said the discussions with potential funders were about “highly concessional rates close to zero”.

“If we were going to borrow at the same rates we have been, it would make no sense. There is also the argument that debt is debt, which is true. But we are stuck between a rock and hard place. If we are looking at shutting our coal plants, we will be losing part of our asset base, so if we do nothing, we will not earn the revenue we need. By investing in new plant, at least we will be producing revenue,” she said.

Rambharos said that the fact that Eskom had a transition plan made engagements with existing lenders much easier.

“When we do due diligence with our lenders, there is always a point at which they want to talk about the just energy transition and climate change. We are finding that because we have a plan, lenders are willing to continue engaging with us on financing,” she said.

Godongwana said that while Eskom needed a just transition to a lower-carbon emissions status, the country at large also required a just transition.

“First and foremost, we have got to do a just transition as a nation. That is the starting point. It will affect all sectors of the economy and need to craft our path towards a just transition.

“The Eskom transition will not replace the country’s transition but is a part of that transition. Of course, Eskom is a major contributor to emissions, so making Eskom a priority will assist in making a dent in the broader just transition,” he said.

The just transition must include “a package where we mitigate the risk to the poor. I would want a major part of the discussion to be about that mitigation,” said Godongwana.