ATC150623: Report of the Standing Committee on Appropriations on the Eskom Subordinated Loan Special Appropriation Amendment Bill (2008/9 – 2010/11 Financial Years) [B17-2015](National Assembly – Section 77), dated 23 June 2015

Standing Committee on Appropriations

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE ESKOM SUBORDINATED LOAN SPECIAL APPROPRIATION AMENDMENT BILL (2008/9 – 2010/11 FINANCIAL YEARS) [B17-2015](NATIONAL ASSEMBLY – SECTION 77), DATED 23 JUNE 2015

Having considered the Eskom Subordinated Loan Special Appropriation Amendment Bill (2008/9 – 2010/11 financial years) [B17 – 2015], referred in terms of Section 13 of the Money Bills Amendment Procedure and Related Matters, Act No. 9 of 2009, the Standing Committee on Appropriations reports as follows:

 

Introduction

 

Section 213(2) of the Constitution of the Republic of South Africa, provides that money may be withdrawn from the National Revenue Fund only in terms of an appropriation by an Act of Parliament. The 2015 Eskom Subordinated Loan Special Appropriation Amendment Bill (2008/9 – 2010/11 financial years) (the Amendment Bill) was tabled by the Minister of Finance in the National Assembly on 3 June 2015. The Standing Committee on Appropriations, hereinafter referred to as the Committee, was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009, and herein referred to as the Act. In line with section 13(2) of the Act, the Committee has a responsibility to conduct public hearings on any money Bill and report thereon to the National Assembly. To this end, an advertisement was published in national and community newspapers from 12 to 14 June 2015inviting general public inputs. Furthermore, requests have been made to experts in the field to provide inputs on the Bill and public hearings were held on 19 June 2015 with the following institutions:

 

• Dr ST Bischof-Niemz -Council for Scientific and Industrial Research (CSIR);
• Mr H Trollip - Energy Research Centre of the University of Cape Town; and
• Prof TJ Lloyd - Cape Peninsula University of Technology and Mr RC Jeffrey – Econometrix Pty (Ltd)

 

In addition to the National Treasury which briefed the Committee on the Amendment Bill in its entirety subsequent to its introduction, the following stakeholders were invited for comment:

 

• Department of Public Enterprises;
• Eskom Holdings SOC Limited;
• Parliamentary Budget Office; and
• Financial and Fiscal Commission.

 

1. Context and Overview of the Bill

 

The purpose of the Bill is to amend the Eskom Subordinated Loan Special Appropriation Act (2009-201011 financial years) No. 41 of 2008 (the Act), so as to convert the subordinated loan amounting to R60 billion which was granted to Eskom in 2008 to shares for the State to the value of R60 billion. The said funding was to support Eskom’s capital expenditure programme in the form of tranches to be paid as follows: R10 billion in 2008/09; R30 billion in 2009/10; and R20 billion in 2010/11. As per the 2008 Act, the Minister of Finance was required to enter into a subordinated loan agreement with Eskom. The Act stated that the loan agreement must provide for:

 

• the loan to be subordinate to other debts of Eskom;
• payment terms that—

• provide for the repayment of the loan over a 30-year period at a market related
• interest charge: and
• take into account the medium-term impact of Eskom's capital investmentplan on Eskom's balance sheet: and
• such regular reporting by Eskom on its financial status and on theimplementation of its investment plan as required by the National Treasury.

 

1. Provisions of the Amendment Bill

 

Clause 1(1)(a) of the Amendment Bill amends section 1(2) of the Act as follows:

• By including the full name of Eskom (Eskom Holdings SOC Limited);
• Replacing the requirement that the R60 billion appropriation made in the 2008/09 to 2010/11 financial year be subject to a loan agreement with a requirement that Eskom must issue ordinary shares to the State to the value of R60 billion.

 

Clause 1(1)(b) of the Amendment Bill proposes to delete section 1(3) of the Act that further regulates the 2008 loan agreement.

 

Clause 1(2) of the Amendment Bill stipulates that the 2008 loan agreement will lapse and have no force and effect from the date that Eskom issues shares to the State to the value of R60 billion.

 

Clause 2 of the Amendment Bill proposes to amend the short title of Act by omitting the reference to the phrase “Subordinated Loan”.

 

Clause 3 of the Amendment Bill contains the short title.

 

1. Hearings conducted on the Amendment Bill

 

1. National Treasury

 

National Treasury stated that a strong and sustainable electricity generation sector was essential for energy security in South Africa to support economic growth and development as well as job creation. It reported that Eskom’s current new-built programme has experienced significant delays which resulted in a shortfall of electricity supply and increased costs. Furthermore, inadequate maintenance of power plants and transmission and distribution networks has resulted in deteriorating and unreliable performance leading to higher maintenance costs. This has led to more reliance on expensive gas-fired power stations to meet electricity demand. It was reported that these factors have resulted in a deterioration of Eskom’s financial position which impacted negatively on its ability to raise funds at reasonable costs.

 

It was reported that the conversion of the subordinated loan to equity was part of the overall support package to Eskom as per the Cabinet decision in 2014. It was stated that this conversion will strengthen Eskom’s balance sheet as the R60 billion will be reflected as equity resulting in an improvement in Eskom’s debt to equity ratio and other credit metrics. It was further reported that this conversion will have no direct cash flow impact for Eskom or the State as the funds were appropriated and transferred to the former between 2008 and 2011. To date, Eskom was not required to pay any interest or guarantee fees on the loan as per the agreement between the then Minister of Finance and Eskom.

 

1. Department of Public Enterprises

 

The Department of Public Enterprises (the Department) indicated that in 2014 Eskom submitted an application to Government for a support package highlighting various solution options. The ideal option being an average annual tariff increases of 19 per cent for 2015, 2016 and 2017 which would have resulted in no need for state funding contribution but the approved tariff increases were only 13 per cent. The Department submitted that a key consideration in the tariff outcomes was the domestic economic climate. The Department highlighted that Eskom will focus on 3 primary issues to address its challenges i.e. strengthening its liquidity position to ensure financial viability, improving operational performance by prioritising critical maintenance and ensuring effective governance.

 

The Department reported that Government agreed in 2008 to provide Eskom with a subordinated loan to support and stabilise its credit ratings and assist its financial sustainability. This was due to the fact that Eskom was downgraded by Moody’s in August 2008 by 4 notches in local currency (3 in foreign currency) which left it with a negative credit outlook. Furthermore, S&P had placed it on negative credit watch.

 

The Department of Public Enterprises reported that Cabinet approved an equity support package for Eskom on 11 September 2014. Table 1 below outlines the contents of the supports package.

 

Table 1: Eskom Support Package – September 2014

Tariffs	Approved support for Eskom to apply for an overall tariff increase as determined by the National Energy Regulator of South Africa (NERSA) for the remainder of Multi Year Price Determination 3 (MYPD3)
	The support takes into account the R7.8 billion already approved by NERSA in terms of the regulatory clearing amount
Equity	An equity injection of R23 billion to help relieve the impact on electricity consumers
Subordinated  Loan and Debt	Conversion of the 2008 subordinated loan to equity
	In addition to the R200 billion debt in MYPD3, Eskom will have to raise additional debt of R52 billion
Eskom Efficiency	Eskom to implement cost containment programme
	Effective management of the build programme
	Eskom should not invest in future coal mines
	No provision to be made for the additional R50 billion Capital Expenditure (Capex) requirement
	Eskom must better manage its working capital
	Eskom to ensure that effective maintenance of its generation plants is carried out and efficient procurement is achieved, amongst others

Source: Department of Public Enterprises

 

The Department stated that the conversion of the subordinated loan will improve key financial ratios and help defend Eskom’s vulnerable credit ratings as it was subordinated to the senior debt. It was reported that the loan did not generate any incremental value nor cash service relief as it was not being serviced, however, were Eskom’s financial situation to improve, an estimated R86 billion could be reduced in future cash interest expense. Furthermore, the conversion of the loan to equity would help defend and over time recover investment credit ratings.

 

The Department of Public Enterprises further submitted that a combination of tariff price increases, business efficiency savings through Eskom’s Business Productivity Programme, additional borrowings and equity injection will result in an improvement of financial metrics over the period with favourable ratios being reached in 2017/18.

 

1. Eskom Holdings SOC Limited

 

In its submission, Eskom Holdings SOC Limited (Eskom) indicated that a strong and sustainable Eskom was required to ensure a sustainable economy. It was reported that there is currently a maintenance backlog and this has led to deteriorating power station availability and subsequent load shedding. In the short term, Eskom will prioritise risk maintenance in order to reduce the amount of unplanned maintenance and ensure sufficient capacity is available for planned maintenance.Eskom reported that it was in the process of finalising a turnaround strategy to address its financial situation, operations, and new-build power supply delivery.

 

Eskom submitted that the period 2006 to 2018 constitutes the electricity supply sector’s investment phase with stringent supply constraints and increasing tariffs to fund the new build programme. The period 2018 onwards is expected to be cash positive for power generation and debt is to be repaid. Eskom reported that it was in the process of undertaking a five year R280 billion Capital Expenditure (Capex) Programme comprising of about 8000 projects and that 32 generating units had been added since 2001 amounting to 121 units in total. The reported main drivers of the Capex programme were as follows:

 

• New-build supply capacity (R159 billion);
• Major capitalized overhauls (R29 billion);
• Refurbishments and replacements (R63 billion);
• Customer connections (R10 billion); and
• Legal, regulatory, safety, and environmental compliance (R19 billion).

 

Eskom’s total capital expenditure for the current year is R60 billion with new builds contributing 40 per cent to expenditure. Eskom indicated that its capital projects programme is on track with one unit from Medupi and two units from Ingula to be completed in the 2015/16 financial year. It was reported that the delays in the new build infrastructure programme have largely been due to contractors through strikes or technical non-performance.Furthermore, it was highlighted that deviations from the planned capital expenditure would have an impact on Eskom’s financial health and sustainability.

 

Eskom reported that at minimum it needed to break-even in the current financial year and that it would remain liquid within the same. This would therefore require a close monitoring of expenditure as well as improved sales and collections from customers in order to minimise impairment of revenue. Eskom indicated that the R23 billion equity injection would be used to fund capital expenditure and that this allocation as well as the conversion of the R60 billion loan into equity would improve Eskom’s gearing from 75 per cent to 67 per cent. Eskom reported that it plans to raise a total of R55 billion of debt securities for the 2016 financial year.

 

 

Table 2: Debt securities to be raised in 2015/16

Debt Securities	R’ Million
Eskom Bonds	8 000
DFI and other loans	7 244
Export credit facility	10 576
International Bonds	16 500
Commercial paper	10 000
Development Bank of Southern Africa	3 000
Total	55 320

Source: Eskom

 

Eskom indicated that debt and equity financing is mainly utilised to close the gap where there is a shortfall in revenue funding. In terms of revenue collection, Eskom highlighted the benefits that can be derived from maximising prepayment across all the customer groupings. It was reported that prepayment would improve cash flows as a once-off benefit as well as most of the balance sheet ratios. This would also be in effect an interest free borrowing mechanism and also result in the reduction of long term debt.

 

1. Parliamentary Budget Office

 

In its presentation, the Parliamentary Budget Office (PBO)provided an analysis on the Amendment Bill first by giving a background on State Owned Enterprises (SOEs) in the South African context. The PBO reported that although SOEs are established at ‘arms length’ from government to enable them to focus on a special mandate and manage their operations and finances as a private sector company, this creates challenges in terms of monitoring delivery on their mandates and ensuring return on the State’s investment. The PBO highlighted that the reasons why the state mainly funds SOEs includes capitalisation, compensation for non-commercial mandates, and the reduction of public borrowing costs.

 

Furthermore, the PBO indicated that oversight over SOEs requires detailed understanding of the composition of costs and revenue of SOEs as the lack thereof may present difficulties in enforcing conditions on how a cash injection should be spent. This was also key in order to understand how failure in any of the financial and operational aspects of SOEs can result in financial challenges as is the case with Eskom. More specifically, failures in any one factor (e.g. high costs due to inefficiency, inadequate or excessive tariffs, excessive non-commercial mandates, etc.) will have consequences for other factors such as the fiscal framework and the state’s policy objectives.

 

The PBO submitted that it is critical for Eskom to have a sufficient reserve margin in installed capacity so as to allow for breakdowns and ‘unexpected events’. It indicated that the international norm is for a reserve margin of 10-25%, depending on the types of generation capacity and other factors. Therefore, to avoid load-shedding under normal situations, Eskom may need 10-25% more capacity than peak demand though the need may be greater given the maintenance backlog.

 

The PBO indicated that current challenges facing Eskom present a special case for regulation because of the historically low tariffs and the size of the new build infrastructure programme. The PBO submitted though there is a widespread view that the increases NERSA allowed were not adequate. The Parliamentary Budget Office indicated that a key consideration in the setting of tariffs was determining the equitable contribution that current consumers must make to new build infrastructure costs given that past consumers clearly underpaid and future consumers will also benefit.

With regard to the Amendment Bill, the PBO stated that the conversion of the full value of the loan to equity was in effect only a partial conversion as more than half of the loan served as cash injection upon issuance. To this end, only R29.5 billion was recorded as a liability on the balance sheet while the remainder of R30.5 billion was recorded as straight equity injection. It was reported that the equity portion has increased from R30.5 billion in 2008/09 to R35.6 billion at present hence only R24.4 billion of the loan initially granted is being converted to equity as a result of the Bill. With regards to the payment of interest on the 2008 subordinated loan, the PBO stated that at the issuance of the loan it was clear that Eskom would not meet the minimum credit ratio standards in the near future and would, therefore, not be expected to pay interest. This represents forgone revenue for Government.

 

The PBO reported that the implications of the Amendment Bill to Eskom and Government are illustrated in Table 3 below.

 

Table 3: Implications of Bill to Eskom and Government

No.	Eskom	Government
1	Balance sheet improves	Balance sheet weakens
2	No longer an obligation to pay back the loan or interest	Relinquished loan repayment
3	No obligation or incentive to pay dividends to the State.	Potentially forego about R82.6 billion on interest payments
4		No envisaged dividends to be received

 

 

 

 

 

 

3.5        Financial and Fiscal Commission

 

In its submission, the Financial and Fiscal Commission (FFC) assessed the Bill within the context of the relationship between electricity consumption and growth in real Gross Domestic Product. The FFC indicated that South African growth projections over the Medium Term Expenditure Framework assume minimum disruption to electricity output and consumption. The FFC submitted that further deterioration of electricity generation output in 2015 could reduce economic growth by 1 per cent in 2015 and this will have a significant impact on the economy and budget revenue estimates. Better than expected generation of electricity or greater energy efficiency could boost growth in 2015 by 0.4%. Overall, the likely impact on growth through stable electricity generation will be much more than the equity injections.

 

It was stated that Eskom was planning to raise an additional R280 billion to fund its capital infrastructure expansion programme to meet the growing energy demand in South Africa. By 2017/18, Government guarantees to Eskom would have escalated to 67 per cent of total Government guarantees. The FFC submitted that careful consideration should be accorded to the provision of government guarantees to SOEsvis-à-vis’ operational risks and efficiency. In particular, guarantees are not exposed to the same level of scrutiny in the budget process as regular spending thus the need for oversight mechanisms over guarantees to be further strengthened.

 

The FFC further submitted that it supported the movement towards cost reflective tariffs as an important avenue for funding infrastructure development. It however advised that consideration should be given to the willingness and ability of consumers to pay as well as the likely impact on the economy and poor households. Debt owed to Eskom by municipalities amounted to over R9 billion in 2014. The state has taken active measures to encourage municipal debt repayment.

 

The FFC submitted that the conversion of the subordinated loan to equity was intended to strengthen Eskom’s balance sheet by reducing its debt and to improve its debt to equity and other financial ratios. This Amendment Bill could potentially reap considerable interest savings for Eskom and improve gearing. It further stated that the implication of the said conversion on Government finances is the waiving of the R60 billion debt owed by Eskom. The following recommendations were made by the FFC:

 

• The policy clarification and implementation on alternative energy supply options, especially the Independent Power Producers (IPPs) should to be expedited.
• Introduce private sector equity partners, within policy parameters, to inject funding and expertise in Eskom and the new-build programme.
• Government guarantees should be used more sparingly and as a last resort in managing risks.
• The Department of Energy and Eskom executives should communicate with customers and interested parties to find solutions to the prepayment across customer groupings, including holding public hearings.

 

1. Dr ST Bischof-Niemz -Council for Scientific and Industrial Research

 

Dr ST Bischof-Niemz from theCouncil for Scientific and Industrial Research (CSIR) presentation focused on the financial aspects of the power system expansion. He highlighted the cost-competitiveness of renewable energy by illustrating the benefits that have been derived as part of the Department of Energy’s procurement of renewable energy capacity from Independent Power Producers (IPPs). He indicated that in 2014, renewables generated financial benefits of R5.3 billion through fuel-cost savings and avoidance of unserved energy in comparison to the cost of R4.5 billion which is paid as tariff payments to IPPs. This resulted in R0.8 billion net benefit to the economy.

 

The CSIR indicated that that although the costs of new IPP purchases have been approved and Eskom would be able to recover these costs in the next rounds of Multi-Year Price Determination (MYPD), these costs posed a challenge from a liquidity perspective because they are not funded under the current MYPD3 (i.e. price determined for the period from 1 April 2013 to31 March 2018). He indicated that any new power generation capacity is more costly than the current cost of generation and will thus result in an increase in average tariff prices.

 

The CSIR submitted that Eskom’s planned infrastructure expenditure on electricity transmission is small when compared to electricity generation’s new-build programme and proposed that spending on new-build infrastructure be balanced with spending on grid infrastructure. He explained that transmission infrastructure was key for grid connections for IPPs, customer connections and the overall security of the network.

 

It was pointed out that whilst the new-build programme was important, spending on grid infrastructure must not be de-prioritised as there will be long-term negative effects on the power system, and these include:

 

• Non-availability of inexpensive additional power (mainly wind power); and
• Suppressed sales due to fewer customer connections to the main electricity grid.

 

1. Mr H Trollip - Energy Research Centre of the University of Cape Town

 

In his submission, Mr H Trollip from the Energy Research Centre of the University of Cape Towncommented that the current power constraints and Eskom’s financial challenges have to be contextualised within the current legislative and policy framework which allows for the transparent setting of cost-reflective tariffs through Independent Regulation i.e. NERSA. He indicated that although this framework is in place, in practice it is not adhered to because in a number of tariff determinations the set Eskom tariffs were evidently not cost-reflective.

 

MrTrollip acknowledged the urgent necessity to allocate funds to Eskom, though cautioned that the setting of tariffs that are not cost-reflective and funding Eskom shortfalls from the fiscus was equivalent to a non-transparent out of policy subsidy to the energy intensive industries as these were Eskom’s largest customer base.

 

Mr Trollip recommended that the Amendment Bill as well as the 2015 Eskom Additional Appropriation Bill be adopted with the following reservations:

 

• That the funding allocations be appropriate to overcome the immediate electricity supply challenges;
• That the policy, practice and institutional capacity of NERSA be re-established to implement policy and legislation to effect cost-reflective tariffs;
• That an effective subsidy to energy intensive industries be established and that it be recovered in a tariff premium; and
• That a transparent mechanism be developed when tariffs become unaffordable to poor households.

 

1. Prof p Lloyd - Cape Peninsula University of Technology and Mr RC Jeffrey – Econometrix Pty (Ltd)

 

Prof P Lloyd from the Cape Peninsula University of Technology and Mr RC Jeffrey from Econometrix Pty (Ltd) jointly submitted that Eskom must grow in order to achieve economic growth in South Africa. It was further stated that many decisions related to Eskom’s operations in recent years were political rather than commercial which had many unintended consequences such as the following:

 

• Delays in the construction of new power stations led to the current power crisis and resulted in the loss of expertise in the sector;
• Provision of free basic electricity has led to a culture of non-payment;
• Below-inflation tariff increases in the past have led to the current above inflation increases;
• The separation of the renewable energy programme from the Department of Public Enterprises and Eskom has led to unexpected connection costs for Eskom;
• The cost of coal from small coal mining companies was significantly higher than from large mines and also caused quality and transport challenges;

 

The presenters indicated that the cost impact of these policy decisions were negative for fixed investment, growth and employment. In addition, renewable energy was welcomed as an additional energy source though not recommended for base load.

 

The presenters were of the view that it was difficult to see the cost impact of policy decisions because of the structure of Eskom.  They cited examples such as the impact of non-payment on Eskom’s cash flow and high gearing and the difficulty in identifying connection costs for renewables and IPPs due to transmission costs being hidden in a controlled tariff.

 

The following recommendations were made:

 

• That Eskom be divided into three entities as per specific functional areas: base power generation; transmission; and distribution and that these be funded according to functional business requirements. Furthermore base power generation and distribution should be partially privatised.
• Independent Power Producers (IPPs) should be expanded and equal completion in this regard should be fostered.
• Best commercial business procedures should be practised such as independent management and board appointments as well tenders should be awarded at strict arms-length business.
• Supply of electricity generation, transmission and distribution should be maximised and sustainable and efficient operations should be ensured at the lowest possible cost.

 

1. Committee Findings and Observations

 

Having considered all the submissions made by the above stakeholders on 2015 Eskom Subordinated Loan Special Appropriation Amendment Bill (2008/9 – 2010/11 financial years), the Standing Committee on Appropriations found the following:

 

1. The Committee takes note of the critical role of electricity supply and Eskom in the South African economy and is concerned about the financial and operational challenges currently being experienced by Eskom and their adverse impact on the economy. The Committee places emphasis on the need for enhanced transparency in Eskom’s operational and improved financial performance.

 

1. The Committee notes that Eskom has a maintenance backlog which has led to deteriorating power station availability and subsequent load shedding. The Committee is of the view that the current challenges experienced are temporary rather than systemic in nature. The Committee implores Eskom to communicate more effectively with the public regarding electricity supply issues and related measures needed to address same.

 

1. The Committee notes that it would take three years for Eskom to increase the total available electricity capacity in South Africa which would lead to an end of load shedding and ultimately to make Eskomprofitable in future. In respect of the total amount of funding needed to address the supply challenges, the Committee notes the submission from Eskom that it would require R280 billion which, in addition to the conversion of the R60 billion to shares for the State and an additional appropriation of R23 billion, will be raised through borrowing.

 

1. In its engagement with Eskom, the Committee observed that most of Eskom’s top management positions had acting incumbents. The Committee is of the view that the effective implementation of the Eskom support package should be accompanied by concerted efforts by Eskom to strengthen its management and acquire the requisite skills which includes the filling of all critical vacant posts.

 

1. The Committee supports interventions aimed at making Eskom a sustainable business which places priority emphasis on Eskom improving efficiency through reducing costs and Eskom applying for tariff adjustments in line with regulatory processes that are transparent and equitable.

 

1. The Committee notes the Department of Public Enterprises’ submission that Eskom loan had not generated any incremental revenue nor cash or debt service relief as it was not being serviced. Furthermore, the Committee notes that government potentially foregoes R86 billion in possible future interest expense on the loan.

 

1. Overall, all public inputs received on the Amendment Bill agree on the need for immediate financial support for Eskom in the short term.

 

1. The Committee notes the FFC’s submission that careful consideration should be accorded to the provision of government guarantees vis-à-vis’ operational risks and efficiency. In particular, guarantees are not exposed to the same level of scrutiny in the budget process thus the need for oversight mechanisms over guarantees to be further strengthened.

 

1. The Committee notes the FFC submitted that funding for Eskom should be conditional on the state speeding up policy clarification and implementation on alternative energy supply options, the introduction of private sector equity partners through established policy parameters such as Private Public Partnerships and improving communications on the importance of prepaid electricity.

 

1. The Committee notes that municipal debt owed to Eskom amounted to over R9 billion in 2014. The Committee views it as a policy imperative that all government departments and state entities should settle their debts for electricity and other applicable rates and tariffs timeously.

 

1. The Committee notes public inputs from the University of Cape Town that indicate that whilst there are institutions and regulatory processes in place to allow for the setting of cost reflective tariffs, there have been significant differences in tariffs applied for and tariffs agreed to. The primary concern is that this may undermine independent regulation and the general government funding policy framework.

 

1. The Committee is of the view that tariffs should be differentiated so that energy intensive industries and large users do not unduly benefit from state funding. In particular, poor households; who constitute less than 15 per cent of energy users, should be protected from high energy prices.

 

1. The Committee views skills transfer as critical in the rollout of Eskom’s significant infrastructure investment. The Committee notes that engineering skills are globally mobile and thus the need for sustained roll out of the state’s infrastructure programme.

 

 

 

 

1. Recommendations in relation to the hearings on the Amendment Bill

 

Based on the hearings with stakeholders on the Amendment Bill, the Standing Committee on Appropriations made the following recommendations:

 

 

1. That the Minister of Public Enterprises and Minister of Finance should ensure the following:

5.1.1     That the Department of Public Enterprises and National Treasury submit quarterly reports on the Eskom’s financial and non-financial performance to Parliament.

5.1.2     That the Department of Public Enterprises and National Treasury developand set explicit targets and submit quarterly reports on Eskom’s cost containment program, working capital management, procurement effectiveness and its business efficiency programme to Parliament.

 

1. That the Minister of Finance should consider the following:
   1. That funding allocations to Eskom and all other state owned enterprises strictly adhere to the fiscal policy principles and enabling legislation of long-term debt sustainability, counter cyclicality and inter-generational equity.
   2. That National Treasury through the Chief Procurement Office assist Eskom in ensuring that its procurement systems are efficient, effective and transparent so as to ensure value for money and the attainment of enterprise targets.
   3. That National Treasury in partnership with the Department of Cooperative Governance develop and implement mechanisms to ensure that inter-governmental debt with emphasis on electricity and water is paid timeously.

 

1. That the Minister of Public Enterprises should ensure the following:
   1. That the Department of Public Enterprises and Eskom fills all funded vacant posts within the current financial year.
   2. That the Department of Public Enterprises and Eskom implement a comprehensive communications and implementation strategy that is transparent and equitable on rolling out pre-paid electricity across all customer groupings.
   3. That the Department of Public Enterprises monitor and evaluate all governance arrangements in Eskom. In particular, the Department should ensure the effective functioning of the Internal Audit and Risk Management Units and Independent Audit Committee in Eskom.
   4. That the Department of Public Enterprises ensures that Eskom prioritises and embeds skills transfer in its new build infrastructure programme.
   5. That Eskom communicates clearly and consistently to the public regarding electricity supply issues and Eskom’s related measures needed to address the same.
   6. That Eskom reports to Parliament on their turnaround strategy within 6 months.
   7. That Eskom continues to prioritise the provision of transmission and distribution infrastructure.
   8. That Eskom has a strategic dividend policy in place which takes into account the growth and development objectives of the country.
   9. That Eskom sets a differentiated and appropriate pricing mechanism which will ensure that large and energy intensive users are charged differently from the poor and vulnerable.

 

1. That the Minister of Energy should ensurethat Department of Energy develops clear policy and implementation guidelines on alternative energy supply options and Independent Power Producers.

 

1. That the Minister of Energy and the Minister of Public Enterprises should ensure that the rollout of renewable energy projects remains on track through effective and efficient coordination betweenthe Departments of Energy and Public Enterprises.

 

1. Committee Recommendation on the Amendment Bill

 

Notwithstanding the recommendations in section 5 above and the submissions made by the various stakeholders, the Standing Committee on Appropriations recommends that the National Assembly adopts the Eskom Subordinated Loan Special Appropriation Amendment Bill (2008/9 – 2010/11 financial years) [B17 – 2015], without amendments.

 

 

Conclusion

 

The responses to the recommendations as set out in section 5 above by the relevant Executive Authorities must be sent to Parliament within 60 days of the adoption of this report by the National Assembly.

 

 

The Democratic Alliance indicated that it does not believe that the Committee has been presented with sufficient information on the efficacy of the conversion of the loan into equity and as such reserves its right.

 

 

 

Report to be considered.