Eskom Guarantee Framework Agreement

Eskom has written to the signatories of the Government Support Framework Agreement (GSFA), which guarantees the state-owned supply company`s assistance in meeting its obligation to purchase electricity from independent power producers (IPPs) for renewable energy, to discuss a possible triggering of state aid, given the current restrictions on cost amortization by the Compensation Account Pricing and Settlement Mechanism (R CA). The guarantee extends “directly to secured lenders, while it still provides unsecured lenders with the certainty that their investments are more likely to be served by Eskom in the event of a financial emergency,” the document reads. “Take or payment agreements require the government to enter into long-term agreements, even if power is not necessary, as is currently the case. It is therefore essential that the country authorizes a revised plan that better informs decisions, including technology and date of implementation. As we look at the implementation of the policy, unintended consequences have emerged and further consultations with all relevant stakeholders are needed,” Brown said at a briefing in March. About two-thirds of marginal bonds are backed by an explicit state guarantee, which is also expected to improve the position of holders of unsecured securities, according to a briefing paper on the agreement between Eskom and the government, published on the company`s website. The February budget review classifies guarantees for IPPs as a contingent liability that could “materialize” as a state commitment if Eskom has no cash and is unable to purchase electricity, as stipulated in PPPs, or when the government announces PPPs because it cannot fund Eskom or as a result of a change in government policy and/or legislation. About two-thirds of marginal bonds are backed by an explicit state guarantee, which is also expected to improve the position of holders of unsecured securities, according to a briefing paper on the agreement between Eskom and the government, published on the company`s website. Under the terms of the agreement, the government is required to intervene if Eskom expects payment pressure to avoid default. It also excludes cross-defects. Eskom, which supplies about 95 percent of the country`s electricity, doesn`t generate enough money to pay off its debt and is struggling to meet demand for its old, poorly maintained facilities.

The government has already allocated $138 billion in bailout margins over the next three years, but plans to shake up the company – including the appointment of a permanent chairman of the board – are lagging behind. The GSFA is the framework agreed between Eskom and the Ministers of Finance, State Enterprises and Energy, which sets out the assistance that the government should provide with regard to Section 34 of the Electricity Regulation Act, which governs ministerial provisions that facilitate the acquisition of IPP capacity. . . .