South Africa

South Africa

South Africa equity injection in doubt

SOUTH AFRICA: Confusion seems to have engulfed a $2.8 billion lifeline for South Africa's power utility Eskom that was intended to help it fund its capacity expansion programme.

The South African government announced in early November that the cabinet had approved a $2.8 billion equity injection for Eskom, which is seeking $62 billion to implement its expansion plan. This is hoped to add 12.3GW to the country's national grid by 2017 through projects that include the 100MW Sere wind farm in South Africa's Western Cape province.

Energy minister Dipuo Peters and the ministry of finance have given different explanations as to how the $2.8 billion is to be raised and whether or not the funding will be subjected to the normal government budget approval process.

Although initially billed as an injection of equity for Eskom, Peters says the $2.8 billion "is not additional funding but a guarantee from government to allow Eskom to raise loans from the market".

But Treasury spokesperson Jabulani Sikhakhane says the funding would have to undergo normal budgetary processes and receive the approval of parliament. South Africa's next national budget is due in February 2011, meaning Eskom's efforts to raise funds for projects such as Sere will have to wait until then.

The $157 million plant was initially slated for completion last May but has been delayed for lack of funding, according to Eskom's 2010 half-year financial report. The wind farm is part of the company's $1.2 billion renewable-energy generation programme, dubbed the Eskom Renewable Energy Investment Project.

Eskom has an estimated financial shortfall of $26.77 billion over seven years. The government has been seeking to boost the power utility's coffers through a hybrid financing model that includes guarantees and equity injection.

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