In South Africa, the government has ruled out privatising state-run electricity supplier Eskom to solve the utility’s funding shortfall of ZAR225 billion (US$21 billion), Bloomberg reports.

Public enterprises minister Lynne Brown said in a statement that “it would be a grave mistake to privatise this critical player in the economy.

She added: “To my knowledge, Cabinet has not discussed the matter of privatisation, and there is no need to unnecessary raise temperatures around this matter.”

Ms Brown’s comments follow hints from the South African Communist Party, which holds government positions, that parts of the state-run utility might be privatised causing a record jump in Eskom bond yields this week.

Alex Mashilo, spokesman for the party, said: “There are individuals within the broader liberation movement who would gladly support privatization,” but he declined to identify anyone.

Sources of funding

Brown said she is exploring a “portfolio of options” to plug Eskom’s funding gap: “There has been serious public speculation about public-sector equity injection, assets being sold, private-sector equity and tariff hikes. These are levers that must be considered in any serious discussion.”

Eskom’s funding deficit for the five years to 2018 arose last year after energy regulator NERSA granted the utility only half the tariff increases it requested.

Adding to Eskom’s woes is the 50 per cent chance of its bonds due in August 2023 being lowered to junk by the end of September, according to ratings agency Standard & Poor’s, which would significantly raise borrowing costs.

How private sector can help

While privatisation is off the table, the government needs to make decisions “on the extent to which future build projects will be undertaken by the private sector” to ensure the long-term stability of Eskom, Brown said.

She said: “It is critical that the private sector participates in the energy sector and through independent power producers, this practice is firmly entrenched.”

The government has committed to backing 350 billion rand of Eskom’s debt, of which the company has used about a third.

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