Hon Minister, there is a suggestion that I take two minutes of your time.
I will give it to you, Deputy Speaker.
I think one must just provide the context on this Bill because in February we announced that we would support Eskom with an amount of R60 billion. Initially it was going to be back-loaded over a five-year period, but we had to front-load it. The first R10 billion was included in the adjustments appropriation that Parliament voted on this afternoon. There will be R30 billion next year and R20 billion in 2010-11. So, R60 billion will be provided.
But as I said this afternoon, we are not a bank. We cannot provide a loan. This subordinated loan to Eskom requires a piece of legislation. Basically the legislation here is a very complex one. It is two clauses long. I ask Parliament to support it. Thank you. [Applause.]
Deputy Speaker, hon members, Eskom is undertaking a massive infrastructure expansion programme that will require R343 billion. This programme will deliver an additional 16 304 megawatts by 2017 and increase Eskom's generation capacity from 40 000 megawatts to 80 000 megawatts by 2026.
A R60 billion loan is advanced to Eskom to support its investment in electricity generation capacity, and it is allocated over a period of three years. The loan is repayable over a 30-year period, and Eskom will pay interest on the principal only when it is in a sound financial position. I am stating this information because underinvestment in infrastructure is detrimental to our efforts to grow this economy.
South Africa has been experiencing robust economic growth over a number of years, and Eskom's generation capacity has not kept up with this robust economic growth. Eskom has to finance this R343 billion through appropriate price increases, capital injection from government and borrowing from both the local and international capital markets. It will be difficult for Eskom to finance the whole amount from its own internal funds.
The financial position of Eskom has come under pressure due to increases in primary costs. These costs were not matched by an appropriate pricing structure. There was an increase in demand for coal by China and India. These export opportunities for local suppliers exposed Eskom to high international market prices.
The current crisis in global credit markets has increased the cost of borrowing. We have been informed that a year ago, South Africa was able to borrow at a spread of 0,65 percentage points above the rate of the United States government. The situation has now changed. The spread has increased to more than 4 percentage points. We can take comfort in the fact that the South African capital markets are deep and well developed. In actual fact, the Bank for International Settlements rank the Bond Exchange of South Africa higher than even some of the developed countries' bond exchanges.
Standard & Poor's - a rating agency - placed Eskom on a credit watch. This had major implications for Eskom's ability to borrow from both the domestic and international capital markets. This R60 billion loan to Eskom will assist in strengthening Eskom's balance sheet. We have been informed that the credit rating agency will view this loan as capital injection by the shareholder and that it will help Eskom to borrow from capital markets at a lower cost. I thank you.
Madam Deputy Speaker, the global financial crisis is working its way through economies across the world. This has presented an opportunity for commentators to conclude that this event exposes fundamental flaws in the market system and that increased government control over economies is required to avert similar events in future. The reality is, however, that regulatory failure and the failure to implement the principles of good governance lie at the root of this crisis. This event demonstrated the role of government as a lender of last resort and a participant in the economy that intervenes when it is necessary to restore balance to the economic system when it experiences disequilibrium. Who would balance the system if government were the dominant player?
After several outages, resulting in relatively minor disruptions to our economy and daily lives, the magnitude of the crisis at Eskom reached startling proportions in January when our mines stopped operating. When the golden heart of our economy stopped beating, it was obvious to all observers across the world that the electricity supply in South Africa was unreliable and that doing business in South Africa presented increased risk. The system had failed. Our economy has paid a heavy price for this failure.
If Eskom had been a private monopoly, it would have been necessary for government to intervene to ensure that the economy was not damaged beyond repair because it had been starved of energy. The question would have then arisen as to why Eskom held a monopoly. That question should be asked now. If the potential damage to the economy is high enough, government has no option other than to intervene.
Eskom is not just any company. We rely on Eskom to assure our electricity supply. It is insurance for our economic growth and it needs to be financially sound. Our economy cannot withstand continual failure at Eskom. Effective regulation and good governance are crucial.
There are several ways in which companies can access capital. Whatever source is chosen, there will be a price to pay. Fortunately for Eskom, government will be providing R60 billion over the next three years - R10 billion in the current financial year, R30 billion next year and R20 billion the year after. Eskom needs to raise a further R283 billion.
The terms of agreement are very soft. The loan is subordinate to other debts and it is regarded by rating agencies as equity. Interest is around 9,4% and needs only to be paid when Eskom is in a sound financial position in terms of criteria set by Treasury. The capital sum is only payable in the year 2030.
The people will pay for this cash injection, and they will pay twice. Monies now advanced to Eskom will be taken from the public purse and Eskom will be required to repay it along with other possible loans. The only way that Eskom can repay the loan is to ensure that its pricing generates sufficient profit to fund the repayment. This profit is likely to be generated from price increases.
This subsidy to rescue Eskom also carries an opportunity cost of crowding out a meaningful investment in innovative and technological development into new forms of energy generation, especially renewable energy. The full cost of the nuclear programme is not clear.
Senior management cannot expect to continue to enjoy the benefits of corporatisation without being held accountable for their failure to deliver. The R60 billion must not find its way into their pockets. The business model requires reconsideration. Eskom is not an attractive investment option.
In the absence of other funders, the DA supports the Bill. Thank you. [Applause.]
Madam Deputy Speaker, at last members of this House are no longer in the dark with relation to the conditions of the loan given to Eskom because this Bill clearly documents the terms and conditions. So, we can say there is light at the end of the tunnel.
At the beginning of this year, unplanned power outages caused havoc in our country's major industrial sectors. Manufacturing and mining were particularly hard-hit by the outages and forced power rationing and supply shortages. South Africans have lived with uncertain power supply for a number of years, but the events of January 2008 underline the fact that our country was faced with an economic disaster if a timeous, corrective intervention was not forthcoming.
We know that Eskom has embarked on a massive infrastructure expansion drive and that they needed this kind of funding and injection from government. The projected cost for Eskom's expansion plans run into hundreds of billions of rands. They will perhaps even reach a trillion by 2025 if input costs continue to rise as they have done over the last two to three years.
We know that Eskom will be able to fund most of the costs as electricity tariffs will increase significantly in the future. But we want to sound a word of warning and caution to Eskom that they must keep their rates affordable because many thousands of people, particularly in rural areas, now use Eskom services. Therefore, they must ensure that their rates are affordable. We are in favour of the Bill as the IFP, which sets out the details of the loan over the next three years. We also welcome the provision that the loan is subordinate to Eskom's other debts and that repayment should take Eskom's balance sheet position into account.
The IFP is, however, concerned that Eskom might find it difficult to raise sufficient capital in the current credit environment. We need an assurance from the hon Minister that government will consider providing further financial assistance to Eskom if it is needed in the future. We will support the Bill. Thank you.
Madam Deputy Speaker, the energy crisis that turned our country upside down has stabilised to some extent as people strive to preserve energy. However, the cost of electricity is compromising many households and is challenging an already poverty-stricken South Africa.
The MF hopes that this loan made to Eskom shall sustain correcting the energy crisis and servicing our needs. The MF, however, wonders whether South Africans will be relieved from the exorbitant cost of electricity when this happens. We, in the first place, believe that the extra tariffs placed on citizens in energy cost should not have been an option in an already exhausted economy.
With all these, the MF supports the Eskom Subordinated Loan Special Appropriation Bill. Thank you, Madam.
Motlatsa-Mmusakgotla le maloko a a tlotlegang, mokgatlo wa ANC o netefaletsa baagi botlhe ba Aforika Borwa gore ga o ise o ikgatholose maikaelelo a ona a go tlisa botshelo jo bo botoka go botlhe, mme kgaogo e le nnye fela ya motlakase ga se yona e ka kgaolang kgolagano e e tiileng ya mokgatlho wa ANC mo baaging. Ke tshepa gore tshwetso ya puso ya ANC go neeletsa Eskom ka kadimo ya madi a a fokoditsweng e tla tswala bontsintsi jwa bomaratahelele melomo. Thulaganyo e e tla jaaka tshegetso ya puso go Eskom go netefatsa gore peeletso ya lephata la tlamelo ya motlakase le kgona go fitlhelela nngwe ya dipeeletso le tshireletsego ya tlamelo ya motlakase e e tibileng le kgwetlho ya motlakase mo nakong e telele.
Lefapha la Boset?haba la Matlotlo, National Treasury, le bone go le botlhokwa thata go itlhaganedisa kadimo e ya madi ya dibilione tsa diranta di le 60, R60 billion, mo ngwageng wa kgabagano e, bogolo thata e lebile go sireletsa seriti kgotsa maemo a Eskom a a fetogileng mme e bile a ka reteletsa Eskom go kgona go adima madi go tlaleletsa peeletso ya yona ya diporojeke tsa maatlafatso ya motlakase. Thebolelo e ya kadimo ya madi e rulagantswe jaana: Ka ngwaga wa 2008-09 re solofetse go bona puso e naya Eskom dibilione tsa diranta di le 10, R10 billion; ka 2009-10 e tla rebolela Eskom dibilione tsa diranta di le 30, R30 billion; mme ka 2010-11 e e neye dibilione di le 20, R20 billion.
Re le mokgatlho wa ANC re itumelela kgato e kgolo e, e e tserweng ke Lefapha la Boset?haba la Matlotlo, National Treasury, e e nayang Eskom sebaka sa dingwaga di le 30 go duela madi a kadimo. Re amogela seelo sa morokotso sa 9,4% se se tsamayang le kadimo e. Rona re se tsaya jaaka karolokgolo ya puso mo go netefaletseng badirisi tlamelo e e sa kgoreletsegeng ya motlakase go botlhe; baagi le bagwebi ka go tshwana. Re itumela thata ka gonne seo se tla tlisa tharabololo bogolosegolo ka e imolola tuelo e e kwa godimo ya motlakase go tswa kwa badirising.
Mo godimo ga moo, dintlhatumalano magareng ga Eskom le puso ke gore Eskom e tla simolola go duela kadimo eo ya madi fela fa seemo sa yona se sena go fetoga kgotsa go tokafala, le gona se bontsha fa e ka kgona go busa madi ao a kadimo. Go botlhokwa thata gore jaaka Maloko a Palamente re tswelele pele go baya leitlho le le nt?hot?ho mo tsamaisong ya matlotlo, bogolosegolo mo ditheong tsa rona tsa puso tse di ikemetseng, di tshwana le Eskom, go netefatsa gore diporojeke tse go dumalanweng ka tsona di a direga e bile ga di salele kwa morago le gore diabo tsa matlotlo tse di ntshitsweng di dirisediwa tiro ya tsona. ANC e dumalana le go fetisiwa ga Molao o. Ke a leboga. [Legofi.] (Translation of Setswana speech follows.)
[Ms N R MOKOTO: Deputy Speaker and hon Members, the African National Congress would like to assure all the citizens of South Africa that it has not given up its intention of bringing a better life for all, and that the minimal load shedding cannot interfere with the strong ties between the ANC and the people. I believe that the decision taken by the ANC government to lend money to Eskom will bring an end to all the gossip. This arrangement shows the government's support to Eskom, in order to ensure that the investment from the Department of Minerals and Energy that deals with the supply of electricity is accessible and safe, and the challenges that they face in the long term.
The National Treasury has deemed it ideal to expedite this loan worth R60 billion, from the previous year, especially when considering the protection of Eskom's image or integrity, which could make it difficult for Eskom to be in a position to make a loan in order to supplement it's projects for beefing up electricity supply. This loan has been planned as follows: in the year 2008-09 we expect to see the government giving R10 billion to Eskom; in 2009-10 it will allocate R30 billion; and in 2010-11 it will give R20 billion.
As the ANC we are happy with the huge step taken by the National Treasury, which gives Eskom a 30-year term to pay the money back. We give consent to the interest rate of 9,4% that goes with this loan. We consider it as the government's obligation to ensure the undisrupted supply of electricity to all; both the community and businesses equally. We are very happy because that will bring about a solution, especially as it provides relief to consumers with regard to their payments.
Furthermore, the terms of agreement between Eskom and the government are that Eskom will only begin to pay that loan when the situation has changed or improved, or when they are in a position to refund that loan. It is very imperative that, as Members of Parliament, we should continue to keep an eye on the management of funds, especially in parastatals, such as Eskom, to make sure that projects that were agreed upon are up and running; that they are not behind schedule and that all fundings are used for the intended purpose. The ANC supports the passing of this legislation. Thank you. [Applause.]]
Madam Deputy Speaker, there are two issues I would like to deal with. The hon Singh asks for an assurance that we will be ready to support, come what may. To arrive at the figure of R60 billion, we had to interact very, very closely. But I think what we must understand about this kind of support is that you have to take it from somewhere to put it into companies. Eskom's wonderful achievement over a century - with one exception - is that they have been self-financed. So, it is not a record that we seek to change. When people talk of hundreds of billions of pounds or dollars to bail out banks and so on, this has to come from somewhere. You have to take it from the fiscus. This means that you must then take it away from public services. These are the trade-offs, and I think it is very important that we do not delude ourselves about that reality.
Secondly, the hon Rajbally raises issues about the costs of electricity. I think there is a mistaken impression here. Hon Rajbally, I am saying that we mustn't delude ourselves into believing that this country will be able to return to a time when electricity was plentiful and exceedingly cheap. Apart from living through these issues, there are environmental concerns. There will have to be price changes. If you look at the Medium-Term Budget Policy Statement, you will see that the ideas we propose, and these ideas need to be worked through in Parliament, are that the services must have attached a utility cost. These services don't come from the air. It is very important that in our communication with people we don't kind of fall into this trap that says that it's only because somebody forgot to buy a week's supply of coal at Eskom in January that we are living through all of this.
There is a very significant and important change in economic development, and I think we have a collective responsibility to communicate this to all South Africans. Thank you very much for you support. Thank you, Deputy Speaker. [Applause.]
Debate concluded.
Bill read a first time.