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South African economy cannot afford to allow Eskom to fail

Speaking at the launch of the World Bank’s 12th SA economic update on Tuesday in Johannesburg, the Bank’s country director, Paul Noumba Um, said Eskom is too big to fail and the government has little option but to restructure its debt.

“This is a case of being too big to fail. The SA [South African] economy cannot afford to allow Eskom to fail. The way forward entails a debt-restructuring aspect and the company becoming more efficient,” said Noumba Um.

He noted that the government is considering how to reform the debt of the power utility, indicating that bold steps are likely to be taken after the May general elections. Read more: Eskom is being handled, says President Ramaphosa

Eskom has requested government to take over R100 billion of its R419 billion debt to reduce the burden of interest repayments and put its finances on a more sustainable footing.

In response to this request, President Cyril Ramaphosa appointed a sustainability task team to help South Africa’s power utility find its operational, structural and financial footing.

The update projects GDP growth for South Africa at 0.9% for 2018, 1.3% for 2019 and 1.7% for 2020.

The report states that the economic growth is well below population growth, indicating that it would not be enough to counter inequality and poverty.

“SA’s anticipated economic rebound in 2018 did not occur, confirming the deep-seated nature of its growth challenges,” states the report.

Unbundling of Eskom

In terms of restructuring Eskom’s debt, Noumba Um, said there is a need to look at reconfiguring the three units that currently fall under Eskom namely generation, transmission and distribution.

The World Bank official also noted that there is a major debt restructuring dimension to fixing Eskom. “Eskom owes money to the bank but municipalities also owe money to Eskom, that all needs to be looked at,” he noted.

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