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.