South Africa amends Eskom debt relief, making loans interest-bearing

CAPE TOWN (Reuters) – South Africa’s government has amended its debt-relief terms for struggling state power utility Eskom so that loans to the company will be interest-bearing rather than interest-free, the National Treasury said on Wednesday at a mid-term budget review.

In February, the treasury said the government would take on 254 billion rand ($13.59 billion) of Eskom’s debt over the medium term, with strict conditions. These included that the advance funding would take the form of an interest-free subordinated loan from the National Revenue Fund to be settled in Eskom shares rather than cash.

But in the medium-term budget policy statement presented on Wednesday, the treasury said the government would convert the loans to interest-bearing from interest free to “better reflect the cost of this arrangement”.

The rate of interest will be determined by the finance minister.

If Eskom fails to comply with conditions, the finance minister may reduce amounts to be paid to the utility in future, an Eskom debt relief amendment bill showed.

Government will also not convert the loans to equity if certain conditions are not met.

“These principles and strict conditionalities, greatly enhanced by the amendment, are a key part of how we will deal with Eskom and all other state-owned entities, to avoid a repeat of the mistakes in previous bailouts,” Finance Minister Enoch Godongwana said in his budget speech.

As of the end of September, only 16 billion rand of the 78 billion rand debt relief for 2023/24 had been disbursed to Eskom, the treasury said.

($1 = 18.6970 rand)

(Reporting by Wendell Roelf in Cape Town, and Kopano Gumbi, Anait Miridzhanian and Olivia Kumwenda-Mtambo in Pretoria; Additional reporting by Bhargav Acharya, Nellie Peyton and Tannur Anders in Johannesburg; Writing by Olivia Kumwenda-Mtambo; Editing by Alexander Winning)