The worst a country in deep fiscal and economic crisis can do is not get its story right, or have lots of cabinet ministers with loose lips sowing confusion. But that’s where SA is at present. A good example of this is what cabinet ministers and the president have been saying about Eskom, that troubled utility.
After long delays finance minister Enoch Godongwana tabled a R254bn debt rescue plan for Eskom in February. Hardly two months later, President Cyril Ramaphosa’s electricity tsar, Kgosientsho Ramokgopa, has put out another proposal that seems to go in a different direction.
Ramokgopa’s statements to the media last week make nonsense of the country’s budget process, which requires that government departments prepare their budget proposals for evaluation through structures that have been created by cabinet. What’s worse is that this is happening less than two months after Godongwana tabled the 2023/24 budget. Ramokgopa’s statements already call into question the key numbers outlined in that budget.
That’s not how you run a country and expect institutions that buy government bonds and other investors to take the country and its policy pronouncements seriously.
Godongwana said in February that the government would advance Eskom R184bn in three tranches spread over three years, to repay bonds that become due. Then in 2025/26 the government will take onto its books R70bn of Eskom bonds. The assistance adds up to a total of R254bn.
The finance minister also set conditions for the assistance, including that capital expenditure it may undertake is restricted to its transmission and distribution businesses. It may, however, invest in equipment to meet minimum emission standards and flue-gas desulfurisation, and to do “required maintenance”.
Now Ramokgopa has said his preferred option is for the government to pay for the refurbishment of Eskom’s coal-fired power stations, arguing that this will help reduce power cuts. He reportedly said the refurbishment of these power stations would extend their operational lives, giving the country a breather.
He added that the proposed pumping of money into Eskom by the government is justifiable even if it leads to an increase in the budget deficit. Ramokgopa’s statement runs counter to Godongwana’s message in the 2023/24 budget that “government must maintain a prudent fiscal stance” because of the tough economic environment SA is facing. He made the point that the government had adopted a fiscal consolidation strategy “several years ago”.
The budget Godongwana tabled in February would have taken more than 10 months to prepare and debate through various government forums, including the cabinet committee on the budget, a cabinet subcommittee chaired by the finance minister that makes recommendations to the full cabinet. All that work is now being undermined by one minister, a recent arrival who hasn’t put together any documentation for cabinet’s consideration.
A country where every cabinet minister wakes up and crows about budget deficits or makes statements that contradict what has been tabled in parliament as the country’s budget framework is inviting trouble. It’s even worse when that country is in deep fiscal and economic trouble, as SA has been for a while now.
Ramokgopa’s announcement comes on top of the announcements earlier this year by Ramaphosa and the Treasury that they have commissioned independent assessments of Eskom’s operations. Ramaphosa said in a statement in January that “a team of independent experts has been established to work closely with Eskom to diagnose the problems at poorly performing power stations” and to take steps to improve their performance.
According to Godongwana’s budget speech, the Treasury has also commissioned “an independent assessment” of Eskom operations. This appears to be over and above the various operational conditions the Treasury and department of public enterprises have agreed Eskom must incorporate into its corporate plan.
Since Ramokgopa said nothing of these two assessments, it’s fair to assume his review and proposals don’t take them into account. I did make the point recently that the government’s story on Eskom didn’t cohere, as it wasn’t clear how Ramaphosa’s plan for the utility, centred on the minister for electricity, would join up or be co-ordinated with Godongwana’s bailout of Eskom.
Ramokgopa’s recent utterances are a good example of the lack of coherence in government policy. They are also an example of a phrase that originated during World War 2 in the US — “loose lips sink ships”. It was a wartime warning to Americans, especially those in government positions, to be careful what they said and to whom, as such information might end up in enemy hands.
It has since been adapted to financial markets — “loose lips sink markets” — as a warning of the damage talking out of turn can cause to economies. It’s a disease that’s common in SA.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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