There was some good news about South Africa’s electricity capacity crisis in the Medium-Term Budget Policy Statement (MTBPS).

Although the MTBPS confirmed that total Eskom power cuts to end-September 2023 already exceeded the figure for the entire 2022 calendar year, it stressed that load shedding hours have declined quarter by quarter this year due to improved plant performance.

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It said Eskom recently returned two units to service at Kusile, adding 1 600MW of electricity capacity to the grid, with a further 1 600 MW added to the grid by the end of this year through the return of two more units to service.

“The energy availability factor has risen from an average of 53% in the first quarter of 2023 to nearly 60% at the beginning of the fourth quarter,” it said.

The MTBPS said more than 11 000MW of additional capacity from renewable sources is expected over the next three years.

“This should sharply curtail power cuts,” it said.

The MTBPS said the pipeline of private energy investments, which is critical to progress, continues to grow.

It said private-sector energy investments capable of generating over 5 600MW have been registered with the National Energy Regulator of South Africa (Nersa) over the past two years.

The MTBPS highlighted that several other energy reforms have progressed since the 2023 budget, including:

– Three projects under the Risk Mitigation Independent Power Producer Procurement Programme, with capacity totalling 150MW, will be ready for connection to the grid in November 2023.

– Nine projects with a total capacity of over 1 000MW will be connected to the grid by 2025 under the Renewable Energy Independent Power Producer Procurement Programme, with a further 1 000MW expected in the next phase.

Data published by Eskom in July 2023 indicated that households and businesses have installed 4 412MW of rooftop solar capacity – twice the capacity installed under the Renewable Energy Independent Power Producer Procurement Programme.

The vital importance of South Africa improving its electricity generation capacity was also highlighted in the MTBPS, which indicated that low economic growth is the central problem constraining the government’s ability to raise the revenue needed to sustainably fund the provision of essential services in line with policy priorities.

“Prolonged power cuts would continue to constrain the economy, with significant knock-on effects for the public finances.

“Frequent power cuts make it hard for firms to do business while deteriorating rail freight and slow port operations mean fewer products are transported to markets here and abroad,” it said.

The MTBPS said GDP growth is projected to slow from 1.9% in 2022 to 0.8% in 2023.

Eskom released interim rules in June 2023 to ensure fair and transparent allocation of limited grid capacity, with the MTBPS indicating that deeper reforms to reshape the industry are underway to ensure the country’s energy security.

Cabinet in August this year approved an amendment to the Electricity Regulation Act for public comment.

The amendment aims to establish an independent transmission system operator and a competitive electricity market.

Nersa has granted licences for transmission, trading and importing electricity to the National Transmission Company of South Africa.

The MTBPS added that the debt-relief arrangement announced in the 2023 Budget is expected to position Eskom for a financially sustainable future while allowing the power utility to undertake critical plant maintenance.

The government announced in the 2023 Budget it is providing Eskom with debt relief amounting to R254 billion from 2023/24 to 2025/26, subject to strict conditions.

The MTBPS said this arrangement will enable Eskom to undertake much-needed maintenance and investment and to improve its financial position.

Minister of Finance Enoch Godongwana said on Wednesday that one key condition the government set then was that should Eskom defy any of these conditions, the loan would not be converted to equity.

Godongwana said the Eskom Debt Relief Bill to be tabled on Wednesday seeks to enhance the enforceability of the conditions agreed under the debt relief agreement.

“It provides for the payment of interest by Eskom on amounts advanced as part of the debt relief loan.

“The amendment also provides for the reduction of the amount of debt relief available to Eskom if the entity does not comply with the National Treasury conditions.

“These principles and strict conditions, greatly enhanced by the amendment, are a key part of how we will deal with Eskom and all other state-owned entities to avoid repeating the mistakes of previous bailouts,” he said.

The MTBPS said that as at 30 September 2023, government has already disbursed R16 billion of the R78 billion for 2023/24 to Eskom and a task team has been established with officials from the National Treasury, the Department of Public Enterprises and Eskom to monitor compliance with the conditions and report quarterly on whether Eskom qualifies for the conversion of the loan to equity.

The MTBPS said the government will borrow an average of R553.7 billion over the next three years to be used to finance the gap between what the government spends and the revenues it collects, refinance the redemption of maturing debt, and to finance the Eskom debt-relief arrangement.

However, the MTBPS warned that Eskom’s financial sustainability remains at risk from poor generating plant performance, declining sales, lack of cost-reflective tariffs, rising municipal arrears and high debt-service costs.

It said the debt-relief arrangement for Eskom outlined in the 2023 Budget noted that a large proportion of outstanding municipal debt is owed to Eskom.

National government subsequently invited municipalities to apply for debt relief for arrears debt to Eskom up to 31 March 2023.

The debt will be written off over three years in equal annual tranches, provided the municipality complies with set conditions.

These include enforcing strict credit controls and collecting revenue to pay for bulk expenses like electricity and water, with municipalities that fail to meet the conditions required to repay the remainder of their arrears debt to Eskom, including interest and penalties.

Godongwana said that by October this year, 67 applications had been submitted, totalling R56.8 billion or 97% of the total municipal debt owed to Eskom at the end of March 2023.

“Twenty-eight applications have been approved, with the remainder being assessed and verified with provincial treasuries.

“The ultimate goal is the profound transformation of these municipalities by empowering them to build financial resilience, amplify their capacity to generate sustainable revenue, and rekindle a culture of paying for services rendered,” he said.