Busisiwe Mavuso | Godongwana delivers strong budget with clear plans to tackle energy crisis

POSTED ON: February 24, 2023 IN by Admin
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By Busisiwe Mavuso

BLSA was relieved to hear that concrete measures are finally being taken to address the debt owed to Eskom by municipalities.

Commentators were warning before the budget that if the conditions and mechanisms attached to the Eskom debt transfer were vague and not clearly defined, the markets would react negatively. Finance Minister Enoch Godongwana certainly delivered a clear plan in his budget yesterday.

Government will take on R254bn, or 60% of Eskom’s debt, to be financed over the next three years. He directed the freed-up cash that Eskom would have from lower debt service costs towards the two critical areas that need to be resolved before the country can generate enough electricity to meet demand. He said Eskom would need to prioritise capital expenditure towards improving transmission and distribution capacity and on maintenance of the existing generation fleet to improve availability of electricity.

The lack of transmission capacity resulted in only 860MW out of a planned 5,200MW being approved in bid window 6 of the Renewable Energy Independent Power Producers Procurement Programme and we cannot afford for the REIPPP Programme to be further constrained by the lack of capacity.

Of course, even with the debt relief package, Eskom is nowhere near capable of spending the required R72bn needed to increase transmission capacity and here Minister Godongwana’s call for private sector participation is a welcome one. I’ve repeatedly emphasised the importance of well-planned, viable public-private partnerships and how much we can achieve with business and government working together to achieve common goals.

One element that was not attached as a condition was the unbundling of Eskom into three separate entities: generation, transmission, and distribution, and the need for this to happen becomes even more urgent with the debt relief package.

The main reason for this is so that the process of increasing transmission capacity is managed by the independent transmission business, with the new board and management team being able to focus entirely on this project, which makes up but one element of a wide range of reforms being implemented in Eskom and throughout the wider energy market. Another reason is that an important element of increasing transmission capacity is also improving grid access or connection points to the grid, and Eskom’s grid access unit needs to housed within the new transmission business. We hope the debt relief serves as a trigger to accelerate the unbundling process. This is an important feature for private sector investors.

BLSA was also relieved to hear that concrete measures are finally being taken to address the debt owed to Eskom by municipalities. While Treasury was “still working with Eskom to provide a solution to this problem,” the minister said Eskom would provide incentivised relief to municipalities whose debt is unaffordable. However, the relief would come with conditions, including the installation of prepaid meters, to correct the underlying behaviour of non-payment and operational practices in these municipalities.

Minister Godongwana also delivered an excellent tax incentive package for off-grid solutions with businesses allowed to reduce their taxable income by 125% of the cost of an investment in renewables, with no thresholds on the size of the projects that qualify. The incentive is available for two years and BLSA believes it is sizeable enough to be attractive to many businesses and this will help to reduce demand on the grid.

Businesses get further support through the adapted Bounce Back Loan Guarantee Scheme. The minister said government would guarantee solar-related loans for small and medium enterprises on a 20% first-loss basis and National Treasury would launch the scheme in April.

The package for households, however, isn’t quite so tasty. Individuals will get a rebate of 25% for rooftop solar installations, with a R15,000 ceiling. But with costs ranging from R150,000 to R350,000, it will remain out of reach for the majority of households. Extending the incentive to battery-driven options such as invertors was rejected on the grounds that they don’t contribute to lowering demand on the grid.

The new incentives for off-grid solutions total a chunky R9bn. But those producing their own energy will not only lower demand for Eskom power but will be allowed to sell their excess power back to Eskom, increasing supply. If successful, it won’t dramatically move the needle but will make an important contribution to the goal of ending loadshedding. But to enable this, the feed-in tariff mechanism needs to be established urgently.

Of course there were many other important aspects to the budget but with the energy crisis so central to all else, it was important for a budget that would lift the mood of the markets. Overall BLSA believes it was an excellent budget that was also strong on addressing social welfare needs. His new fiscal trajectory sees government debt projected to stabilise three years later than anticipated, at 73.6% of GDP in 2025/26, but some fiscal slippage was expected given the Eskom debt and BLSA believes it is manageable.

Certainly, Minister Godongwana continues a tradition of excellent leadership of National Treasury and has earned respect from the markets, investors and credit rating agencies.

*Busisiwe Mavuso (@BusiMavuso2) is the CEO of BLSA. This article first appeared in News24 Business.

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