For many South Africans, one of the only good news stories around the Covid-19 lockdown is that load shedding is (apparently) on hold. But the reasons for that, combined with the likely state of the post-lockdown economy, is very bad news.

Load shedding pressure is off because electricity demand has declined sharply under the lockdown. In the post-lockdown economy, activity will almost certainly be significantly down on the previous year, which means less demand for electricity, and less income for Eskom. Many households will be under severe financial pressure for an extended period.

We should, therefore, expect that the number of households that are unable to pay their electricity accounts will increase sharply. More and more people will have to choose between paying their accounts or feeding their children. Given the economic impact of the coronavirus pandemic, there will be considerable pressure on household electricity providers (municipalities and Eskom itself) not to disconnect defaulting clients. This will provide some much-needed relief to households, but it will exacerbate already precarious municipal finances.

Households currently owe municipalities some R120-billion for all services, and a considerable portion of that is for electricity. Total debt to municipalities for electricity that has been outstanding for 90 days or more currently totals around R13-billion. That outstanding debt will only grow in coming months. The inability of households to pay for services cascades upwards: municipalities currently owe Eskom about R25-billion. Under a growing inability of households to pay for services, it will be next to impossible for Eskom to enforce the collection of that outstanding debt. In fact, it is likely to grow. 

So, we have the very real prospect of an already financially desperate Eskom seeing a substantial decline in its revenue, and a corresponding inability to pay its own bills. This includes the interest payments on its domestic debt, much of which is owned by pension funds and institutional investors. It will turn to the fiscus to fill the gaps in its bank account – at exactly the same time that multiple other pressures are on that fiscus: bailouts for small business, increased provision for social grants and countless other emergency needs. Every rand that goes to Eskom represents a rand not available for these needs.

There is currently speculation that South Africa will be forced to ask for a loan from some international finance organisation – such as the World Bank – in order to cover the social needs bill arising from Covid-19. Inevitably these loans will come with conditions. And if the past is any reasonable guide to the future, those conditions will probably end up making things a lot worse for the poorest and most vulnerable in the long term. Instead of borrowing money, some of the debt that South Africa already has should be written off – notably the Eskom World Bank loan. 

Eskom received a $3.75-billion loan from the World Bank in 2010, intended mostly for the construction of Medupi. It is a little difficult to work out exactly how much Eskom still owes the World Bank (it isn’t an obvious line item in the SOE’s annual financial statements), but the World Bank’s own financial statements for June 2019 indicate an outstanding loan amount of $2.28-billion to South Africa, most of which could reasonably be attributed to Eskom. At the rand/dollar exchange rate of R14.07 in June 2019, that equated to R32.1-billion. Today, that dollar amount equates to R43.4-billion – an R11.3-billion increase due to the free-falling rand. That R43-billion makes up a little less than 10% of the total Eskom debt, but removing it from the balance sheet will reduce pressure to default or postpone payments on local debt. It could also ease some of the pressure on financially constrained households, businesses and municipalities. Conversely, $2.28-billion constitutes a relatively small part of the World Bank’s total assets – less than 1% as at 30 June 2019.

There are growing global calls for a debt write-off for developing countries because of Covid-19, and the World Health Organisation is one of the entities that supports this idea: “For [developing] countries, debt relief is essential to enable them to take care of their people and avoid economic collapse”. So does the World Bank (sort of):

“The World Bank Group and the IMF believe it is imperative at this moment to provide a global sense of relief for developing countries as well as a strong signal to financial markets.”

There is an additional argument to support writing off this particular debt – the ethics surrounding its granting and oversight. In theory, the World Bank is not a “normal” lender, but rather (in its own words) an institution that works “for sustainable solutions that reduce poverty and build shared prosperity in developing countries”. In respect of Eskom, that mandate appears to have been ignored.

In a Mail & Guardian article some eight months ago, the Alternative Information and Development Centre made the point that the World Bank loan essentially allowed Eskom to develop new generation capacity in complete contravention of the Bank’s supposed commitment to clean energy. This has saddled us with the heavily polluting Medupi and effectively shut out options for greater investment in renewables.

There are also indications that the World Bank was very well aware of the high levels of corruption around the Medupi construction, but turned a blind eye and continued to dispense funds, leaving South Africans to foot the bill. There is a strong argument to be made for lender co-liability in the Medupi mess.

Finally, this World Bank loan carries its own set of problems that South Africans will have to fork out even more cash to deal with. Eskom itself has signalled, in its most recent annual report, that it will have to spend money – which it doesn’t appear to have – to ensure that it meets the conditions of the World Bank funding agreement. Some estimates are that Eskom will have to borrow an additional R10-billion in order to meet those conditions.

Writing off Eskom’s World Bank debt has a number of immediate benefits: it gives Treasury the opportunity to direct spending towards essential needs, such as a top-up to social grants and better support for small businesses, instead of the Eskom balance sheet. It provides some room to write off municipal debt in respect of customers that can never reasonably be expected to pay, and to write off a corresponding amount of the money that municipalities owe Eskom. That, in turn, prevents forcing municipalities into increasing service prices – that households cannot afford – in order to balance their own budgets.

The Eskom World Bank loan should be written off, now. DM