SA has begun discussions with the World Bank to extend a $1bn loan to support Eskom’s transmission company and to upgrade Transnet’s railway infrastructure, deputy finance minister David Masondo said.
The “discussions about discussions” began on Thursday during the IMF and World Bank annual meetings in Morocco, Masondo said. He emphasised there is no firm commitment yet from the global lender that the financing will be approved.
The World Bank has previously lent money to Eskom, including a controversial $3.75bn loan in 2010 to help finance the construction of Medupi power station, and two renewable energy projects (one of which was never built).
In 2022, the bank approved a R9.1bn loan to help SA lower its greenhouse gas emissions by decommissioning and repurposing the Komati coal-fired power plant in Mpumalanga using renewables and batteries.
“It’s exploratory discussions about our pain points, as SA, on the capital requirements to get our network industries going,” Masondo said. “For Transnet to invest in its freight rail infrastructure and port infrastructure they need money and unfortunately the fiscus does not have that money.”
He spoke to Business Day on the sidelines of the IMF and World Bank annual meetings after discussions with the bank.
The discussions come as SA continues to stagnate, mostly due to persistent power outages imposed by Eskom and Transnet’s inability to adequately service the country’s logistics needs. The two state-owned enterprises (SOEs) have received multiple bailouts from the government in recent years, but continue to be hobbled by worsening operational and financial problems.
Eskom was allocated R254bn in February to service its debts to global financial institutions, which currently top R423bn. The National Treasury paid the first tranche of R16bn at the end of July, while the next tranche is expected at the end of October.
The power utility has been unbundled into three divisions — generation, transmission and distribution — to improve its management.
The launch of the transmission company depends on the finalisation of agreements with the utility’s lenders and the appointment of a board in the next two months. Additionally, what is needed is funding for the establishment of the company, Masondo said.
In the 2022 medium-term budget policy statement Transnet was allocated R5.8bn by the Treasury to fund the repair of infrastructure damaged by the floods in KwaZulu-Natal and the Eastern Cape, and to maintain freight rail locomotives. Transnet’s 2022/23 financial results show that it is sitting on R130bn in debt, serviced at a cost of R1bn a month.
Business Day has previously reported that Transnet was in talks with the Brics-backed New Development Bank for an R18bn loan to upgrade its locomotives.
Should the World Bank loan for the two problematic SOEs be approved, it could increase SA’s debt payment requirements, adding to the growing concerns about the country’s longer-term debt sustainability.
Budget deficit
Business Day has previously reported that the main budget deficit was R47.3bn in August, or R63.3bn including Eskom debt relief above the line, compared with a R42.7bn deficit in August 2022. Provisional financing data for September points to a main budget deficit of R12.8bn, which compares with a deficit of R3.3bn in September 2022.
This suggests a widening in the main budget deficit relative to the same month in 2022. It leaves investors keenly awaiting the Treasury’s medium-term budget policy statement on November 1, concerned.
“Debt in itself is not a problem as long as the country is able to afford to service the debt ... if the economy grows enough to service the debt then the debt is not a challenge,” Masondo said.
“If it’s debt to bail out ailing SOEs then that debt is problematic. If we are accumulating debt to sort out electricity and transmission and rail infrastructure, then that debt is productive and builds value as it builds our capacity as a country to grow the economy.
“We do have capacity to generate more debt; the question is what is that debt used for.”
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