South Africa: Cosatu's Great Eskom Bailout Plan - a Critique

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Cosatu's proposal to use government pension funds and development bank finance to slice Eskom's debt in half is gaining traction and has conditional approval from President Cyril Ramaphosa and government as well as, surprisingly, some support from business. Yet the proposed bailout raises the issues of moral hazard and is more vulnerable to a considered critique than has been presented so far.

The idea of using government pension fund savings to bail out Eskom has enormous superficial appeal, but there are three reasons why the government should not go this route.

First, there is the issue of sequencing, or, to put it another way, do we actually know what Eskom's financial requirements will be over the next five years?

In its most recent financial results, Eskom painted its financial position as dire. But it's worth remembering that Eskom has an enormous incentive to present its financial position in the worst possible light because the principal determinant of its income is not the customer, but the regulator Nersa.

Technically the position is this, according to Eskom: projecting forward to March 2020, the utility will have an income of just under R200-billion and an operating surplus of R25-billion. It will spend about...

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