South Africa pledges $5bn Eskom bailout

South Africa will bail out state utility Eskom with 69 billion rand ($4.9 billion) over three years, the centrepiece of a budget that exposed the limited room President Cyril Ramaphosa has to fix the economy ahead of an election in May.

Ramaphosa, who is fighting rifts within his own party ahead of the parliamentary election, has made reforming Eskom one of his top priorities as its 420 billion rand debt pile poses a direct threat to Africa’s most developed economy.

Analysts said the financial support would give the ailing power firm several years to implement a restructuring plan which will see it split into separate entities for generation, transmission and distribution.

But it still leaves Eskom facing an uncertain future with unsustainable debts, crippling costs and stagnant sales.

“The money for Eskom is insufficient given the length of time over which the Eskom reorganisation will occur and the practical and political pitfalls that are ahead,” said Peter Attard Montalto, head of capital markets research at Intellidex.

Those pitfalls include major job cuts, an option that was unlikely to be implemented before the election amid fierce opposition from leftist sections of the ruling African National Congress (ANC) and powerful trade unions.

The ANC is expected to win the election, but only a handsome victory would give Ramaphosa the mandate to push through painful reforms that are opposed by those within the ruling party still loyal to his scandal-plagued predecessor Jacob Zuma.

Leave a Reply