The debt relief comes at a time the state utility is at risk of default and will cover all interest payments over the next three years and thus allowing the company to undertake plant maintenance and improve transmission and distribution infrastructure.
“Domestically, load shedding has become more persistent and prolonged, impacting on service delivery and threatening the survival of many businesses,” the Minister stated, adding, “The lack of reliable electricity supply is the biggest economic constraint. Record levels of load shedding were experienced in 2022 – 207 days of load shedding compared to 75 days in 2021. In response, we are acting decisively to bring additional capacity onto the grid. We are also working to transform the electricity sector to achieve energy security in the long term.”
Under the conditions of the debt relief program, Eskom will be required to implement recommendations, commissioned by the country’s National Treasury, based on independent assessments of its corporations; hand over the management of several assets to private companies; and install a certain number of prepaid electricity meters to mitigate debt build-up as a result of nonpayment by various municipalities – whose debt to Eskom totaled $3 billion as of the end of December 2022 – throughout the country.
Despite Eskom having received over $14.4 billion in government bailouts since 2008, government has sought to overhaul the electricity utility, which has struggled with a debt burden of approximately $21.8 billion, resulting in increasing scheduled rolling blackouts – load shedding – which has seen up to 40% of the country’s population being left without power for approximately 7.5 hours per day.
South Africa’s energy crisis has resulted in weakened growth for the continent’s most industrialized economy, with the GDP growth forecast having been re-estimated to 0.9%, down from a previous forecast of 1.4%. However, as a result of the debt relief structure, the Minister highlighted that Eskom would require no further borrowing during the relief period through March 2026.
In addition to the government’s debt relief package for Eskom, the Minister also announced a generous tax incentive scheme for renewable energy installations to encourage more individuals and companies in the country to convert to renewable energy and reduce pressure on the national energy grid, with companies now able to deduct taxable income by 125% of the cost of their investment towards renewables. Meanwhile, private households will be able to claim a rebate of 25% of the cost of rooftop solar panels up to a maximum of approximately $8,000.
“Green technologies are becoming cheaper, and the deployment of low-carbon solutions is accelerating,” the Minister stated, adding, “We recognize that we have a role to play in encouraging adaptation and mitigation. Through the Just Energy Transition Investment Plan, launched by the President in 2022 […] R1.5 trillion ($82 billion) will be invested in our economy over the next five years, supported by a coherent industrial policy to enable innovation and economic diversification.”
As a result of the Eskom debt relief program, South Africa’s debt is expected to stabilize at 73.6% of its GDP – which comes three years later than anticipated according to the country’s 2022 Medium Term Budget Policy Statement – following a gross debt stock increase to $319 billion in 2025 from $258 billion in 2023, with debt service costs expected to level out at $20 billion annually over the medium term.