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

(file photo)
analysis

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...

More From: Daily Maverick

Don't Miss

AllAfrica publishes around 800 reports a day from more than 130 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.