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ATC231207: Report of the Select Committee on Appropriations on the Eskom Debt Relief Amendment Bill [B38 – 2023] (National Assembly – Section 77), Dated 07 December 2023

NCOP Appropriations

Report of the Select Committee on Appropriations on the Eskom Debt Relief Amendment Bill [B38 – 2023] (National Assembly – Section 77), Dated 07 December 2023

 

Having considered the Eskom Debt Relief Amendment Bill [B38 – 2023], referred to it in terms of Section 13 of the Money Bills and Related Matters Act, 2009 (No. 9 of 2009) (as amended by Act No. 13 of 2018), the Select Committee on Appropriations reports as follows:

 

  1. 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Section 213(2) of the Constitution of the Republic of South Africa provides that money may be withdrawn from the National Revenue Fund only (a) in terms of an appropriation by an Act of Parliament; or (b) as a direct charge against the National Revenue Fund (NRF), when it is provided for in the Constitution or an Act of Parliament.

 

The Eskom Debt Relief Amendment Bill [B38 – 2023] (hereafter referred to as the Bill) seeks to amend the Eskom Debt Relief Act (No. 7 of 2023) and was tabled in Parliament by the Minister of Finance on 01 November 2023 during the presentation of the 2023 Medium Term Budget Policy Statement (MTBPS). It was referred to the Committee for consideration and report to the National Council of Provinces on 6 December 2023, as prescribed in section 13 of the Money Bills Act. After being briefed by the National Treasury, the Committee consulted with the Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO).  In addition, the Money Bills Act, read with section 72 of the Constitution, mandates the Committee to conduct public hearings on the Bill and for the Committee to report to the House on comments received and proposed amendments to the Bill, if any. In compliance with the requirements of the Money Bills Act and the Constitution, advertisements were published in print media as well as on Parliament’s website and social media platforms, inviting the public and interested parties to comment on the Bill.  Subsequently, the Congress of South African Trade Unions (COSATU) made a written submission and further made an oral presentation during a public hearing held on 01 December 2023 via the Zoom virtual meeting platform, and two written submissions were received via the [email protected] platform.

 

2. Amendments proposed in the Bill

The Bill proposes the amendment of section 2 of the Eskom Debt Relief Act to provide for payment of interest by Eskom on amounts advanced as a loan and for power for the Minister of Finance to reduce the amounts for the requirements for Eskom in the event of non-compliance with conditions. The reduction may not exceed 5 percent of the total amount for the applicable financial year and must be disclosed in the National Treasury’s next quarterly report to the relevant parliamentary committees.

 

3. Stakeholder submissions

  1. Financial and Fiscal Commission

The FFC commended government on the proposed Eskom debt relief to municipalities, indicating that Municipal Finance Management Act (MFMA) Circular No.124 set out conditions that would help municipalities restore financial prudence, accountability, and their overall integrity while they were relieved of their debt to Eskom. However, the Commission raised concern over the punitive nature of certain conditions attached to the debt relief, such as that Eskom would take over the electricity provision function from municipalities in the event of non-compliance with the debt relief conditions. The Commission indicated that electricity was the main revenue source for municipalities and taking this function from them would have detrimental consequences for their sustainability and further worsen their dependency on national transfers. The Commission implored the National Treasury to review this condition. Alternatively, it proposed that the Department of Cooperative Governance (DCoG), in consultation with the South African Local Government Association (SALGA), should ensure that the credit control systems of Eskom and municipalities were aligned by means of a memorandum of understanding (MOU), and that Eskom should assist municipalities with credit control via electricity disconnections within areas supplied by Eskom.

 

The Commission reiterated its recommendation made in the submission for the division of revenue for 2024/25 that National Treasury, in consultation with SALGA, DCoG, and provincial governments, should urge municipalities to apply effective revenue enforcement and credit control mechanisms and improve billing and accounting systems to increase payment and cost coverage levels. In addition, officials responsible for managing municipal finances should possess the competencies and skills required to perform their roles; and municipalities should apply the prescripts of legislation such as the Municipal Systems Act, the Municipal Property Rates Act, the Municipal Structures Act, the MFMA, and municipal service provision by-laws to enforce payment from residents.

 

4. Parliamentary Budget Office

The Parliamentary Budget Office (PBO) submitted that it was important for the Committee to note that -.

  • The interest to be paid on the loan would be at a rate determined by the Minister;
  • Should it be determined that Eskom failed to comply with the debt relief conditions, the amounts reduced by the Minister would apply to future advances to Eskom;
  • The reduced amounts may not exceed 5 percent of the total amount for the applicable financial year;
  • The operational conditions applicable to the debt relief would be included in Eskom’s corporate plan; and
  • A task team had been established to monitor compliance with conditions and report quarterly on whether Eskom was eligible for the conversion of the loan to equity.

 

5. Congress of South African Trade Unions (COSATU)

The Congress of South African Trade Unions (COSATU) welcomed the Bill, as it had first proposed in October 2019 that government take over at least half of Eskom’s debt burden. COSATU indicated that its proposal for a comprehensive plan to stabilise and rebuild Eskom was encapsulated in the Eskom Social Compact signed by government and social partners at the National Economic Development and Labour Council (NEDLAC) in December 2020. COSATU believed that this relief would help Eskom shift its resources to improving its maintenance programme, which was the fastest way to end loadshedding and thus easing the burdens on workers, their families, businesses, the economy and the fiscus.

Whilst welcoming the positive aspects in the Bill, such as measures to hold Eskom accountable for the implementation of its turnaround plans, COSATU was deeply concerned by some of the conditions set by the National Treasury in the Eskom Debt Relief Act and the Bill. Firstly, the prohibition of Eskom investing in new generation capacity did not make sense according to COSATU, as one of the fundamental causes of loadshedding was Eskom’s generation fleet nearing the end of its lifespan.  Whilst it would take time for new generation to come onto the grid, and the immediate focus of Eskom must be on fixing existing infrastructure, there should be a plan to ensure the long-term sustainability of Eskom and prevent loadshedding becoming a permanent feature. COSATU was of the view that moving towards building new, modern, more efficient, and less costly generation capacity was as important as spending money on ageing infrastructure.

COSATU expressed concern over the interest to be paid to the National Treasury, as the Eskom Debt Relief Act spoke of Eskom’s debt relief to be repaid in the form of shares issued by Eskom to the State. COSATU argued that this was a significant shift and would have a monetary impact on Eskom and undermine the very objective of the Act, to take over R254 billions of Eskom’s debt and thus free its resources to invest in maintenance and new generation investments. 

COSATU supported the non-compliance conditions as they would help ensure that the debt relief had the intended progressive impact, and that Eskom undertook the necessary interventions to place it on a sustainable path to ensure its viability; and was able to fulfil its statutory mandate of providing reliable and affordable electricity to the nation.

COSATU recommended the following:

  • The prohibition on Eskom investing in new generation capacity should be removed from the Eskom debt relief package.
  • Clause 1(a)(aA) should be deleted and the existing debt repayment modalities to the State be retained.
  • National Treasury needs to work with Eskom to deal with its fiscal leakages and develop an accurate cost reflective regime that does not budget for corruption and wasteful expenditure, expecting the public to subsidise these.
  • Law enforcement organs need to play their role in supporting Eskom to tackle the criminality and corruption crippling it. 

 

3.4 [email protected]

Two written submissions were received via this platform, and they did not support the Bill.

 

4. Committee Findings and Observations

Having considered all the submissions made by the above stakeholders on the Eskom Debt Relief Amendment Bill [B38 – 2023], the Select Committee on Appropriations made the following findings and observations:

 

  1. The Committee noted the proposed amendment of section 2 of the Eskom Debt Relief Act to provide for payment of interest by Eskom on amounts advanced as a loan and for power for the Minister of Finance to reduce the amounts for the requirements of Eskom in the event of non-compliance with conditions; and that these reductions may not exceed 5 percent of the total allocation, and that this must be disclosed in Parliament.  
  2. Whilst the Committee understood that the debt relief to Eskom was separate from the municipal debt relief; it remained concerned regarding the role parliamentary committees should play in monitoring Eskom’s compliance with the conditions for debt relief, and the fact that consumers may eventually carry the burden of the interest charged to Eskom.
  3. The Committee noted the Financial and Fiscal Commission’s concern over the punitive nature of certain conditions of the municipal debt relief; such as the fact that Eskom would take over the electricity provision function from municipalities in the event of non-compliance with the debt relief conditions.
  4. The Committee noted COSATU’s concern with regards to prohibiting Eskom from investing in new generation capacity, especially now that Eskom’s generation fleet is nearing the end of its lifespan; which is one of the fundamental causes of loadshedding.
  5. The Committee agreed with COSATU’s recommendation that the National Treasury needs to work with Eskom to deal with the entity’s fiscal leakages and develop an accurate cost reflective regime that does not budget for fruitless or wasteful expenditure, which eventually costs the public. 

 

5. Committee recommendations

The Select Committee on Appropriations, having considered the briefings and comments by invited stakeholders on the Eskom Debt Relief Amendment Bill [B38 - 2023], recommends as follows:

 

  1. The Minister of Finance should, as soon as the President has signed this Bill into law, gazette the proposed amendment of section 2 of the Eskom Debt Relief Act to provide for payment of interest by Eskom on amounts advanced as a loan and for the Minister of Finance to be able to reduce the amounts for the requirements of Eskom in the event of non-compliance with conditions and that this may not exceed 5 percent of the allocation.  
  2. The National Treasury, together with Eskom should, within 60 days of the adoption of this Report by the House, take steps to ensure that the interest charged to Eskom is not passed on to poor and vulnerable consumers. Parliament, through its relevant sector committees, should continue to monitor the implementation of the Eskom debt relief programme.
  3.  The National Treasury, together with the Department of Cooperative Governance, the South African Local Government Association (SALGA), and provincial departments of cooperative governance should, within 90 days of the adoption of this Report by the House, ensure that municipalities develop clear measures to apply effective revenue enforcement and credit control mechanisms to improve billing and accounting systems to increase payment and cost coverage levels.
  4. The Committee is of the view that the revocation of municipal electricity distribution licenses in the case of non-compliance may be too harsh and that other better alternative mechanisms should be considered to address non-compliance, without eroding electricity distribution as a municipal revenue source.
  5. The National Treasury, together with the Department of Public Enterprises, the Department of Electricity and Eskom should, within 90 days of the adoption of this Report by the House, take steps to deal with fiscal leakages and ensure an accurate, cost reflective regime with a view to address irregular, wasteful and fruitless expenditure.
  6. The National Treasury, together with the Department of Electricity, the Department of Public Enterprises and Eskom should, within 60 days of the adoption of this Report by the House, come up with a clear and decisive implementable action plan to end loadshedding, which has affected many small and medium sized businesses and continuously impacts negatively on economic growth. The Committee is of the view that the impact of the current energy crisis hampers government’s efforts to address high levels of unemployment, poverty, and inequality.    

 

6. Committee decision on the Bill

The Select Committee on Appropriations, having considered the Eskom Debt Relief Amendment Bill [B38 - 2023] (National Assembly – Section 77); referred to it and classified by the Joint Tagging Mechanism; recommends that the Bill be adopted, without amendments.

 

The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on the Report.

 

Report to be considered.

 

 

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