Tax & Advisory » Eskom Debt Relief: A R254 Billion Lifeline

Eskom Debt Relief: A R254 Billion Lifeline

Finance Minister Enoch Godongwana announced on Wednesday 22 February 2023, that Eskom will receive R254 billion in debt relief over the next three years from the Treasury. The announcement was made during his budget speech to parliament in the midst of South African enduring ongoing high levels of load-shedding. The proposed debt relief is nearly equivalent to the amount in bailouts the power utility has received since 2008.

The government will be taking over a portion of Eskom’s debt as they feel that this will ease the pressure on the company’s balance sheet, enabling Eskom to invest in transmission and distribution infrastructure and conduct maintenance to improve the availability of electricity. And secondly, R337 billion of Eskom’s debt is already government guaranteed.

Eskom’s Debt Relief Plan Has Undergone A Thorough Assessment.

The debt relief is aimed at settling debt and interest payments only and has undergone thorough consultation with Eskom and other stakeholders, as stated in the budget document. Its success is contingent upon the implementation of significant reforms that address the inadequacies of the transmission network and performance of existing power stations.

Due to the Eskom debt relief of approximately R254 billion, the government debt is expected to stabilise at a higher level of 73.6% of GDP in 2025/2026. Godongwana clarified that debt relief would be provided in two parts, namely:

  1. R184 billion – representing Eskom’s full debt settlement requirement in three parts over the medium term.
  2. R70 billion – a direct take-over of Eskom loan portfolio in 2025/26.

The minister stressed that the upcoming arrangement for Eskom will be subject to strict conditions that aim to protect public funds, including, among others, that Eskom prioritises capital expenditure during the period and focus on maintenance of the existing generation fleet.

The relief package also includes certain obligatory conditions such as the development of a mechanism for constructing new transmission infrastructure that will enable substantial private sector participation. These reforms are an integral part of the plan.

The Energy Related Tax Incentive

The energy-related tax incentive for households and businesses in South Africa has numerous benefits for both individuals and the economy as a whole. The head of the Treasury said that in April 2023, it would launch the Energy Bounce Back Scheme, which will guarantee solar-related loans for Eskom’s deterioration on the economy has become especially severe due to persistent and significant levels of small and medium enterprises on a 20% first-loss basis.

Firstly, the incentive provides a financial motivation for households and businesses to invest in renewable energy sources such as solar power, which helps to reduce dependence on non-renewable sources and lowers carbon emissions.

To promote the use of solar panels on residential rooftops a rebate of 25% of the cost of the solar panels will be permitted, subject to a maximum of ZAR 15 000. The rebate applies in respect of new solar panels (excluding invertors and batteries) brought into use between 1 March 2023 and 29 February 2024. To qualify for the allowance, solar panels must be purchased and installed at a private residence and a compliance certificate issued from March 2023 to 29 February 2024 is required.

Secondly, the incentive can lead to cost savings in the long run as households and businesses become more energy-efficient and less reliant on traditional energy sources, resulting in lower electricity bills.

There is a proposal to temporarily expand the tax incentive which is available for businesses to promote renewable energy. Currently the cost of assets generating renewable energy can be deducted over three years on a 50%/30%/20% basis, or in the case of photovoltaic solar energy generation up to 1 megawatt, a deduction of the entire cost is permitted. The incentive will be generously increased to a 125% deduction (of the cost of all renewable energy assets in the first year. To qualify for the deduction, the asset must be brought into use for the first time between 1 March 2023 and 28 February 2025.

Finally, the incentive can also help to create jobs in the renewable energy sector, contributing to economic growth and development. Overall, the energy-related tax incentive offers a win-win solution that benefits the environment, the economy, and individual households and businesses.

Where To From Here?

The proposed Eskom debt relief plan could potentially provide a much-needed lifeline for the power utility and the South African economy as a whole. With persistent and high levels of load-shedding threatening the country’s growth, the debt relief plan and its obligatory reforms may be the key to turning the tide for Eskom and the South African economy.

Ready to switch to solar? Exceed can help individuals and businesses take advantage of the energy-related tax incentive in South Africa by providing expert advice on the eligibility criteria and application process. With their in-depth knowledge of tax laws and regulations, Exceed can help clients maximize their tax benefits while complying with all relevant requirements.