Treasury said the government planned to take on 254 billion rand ($14 billion) of Eskom's 423 billion rand debt it said was at risk of default, to enable the utility to pay down the debt and interest obligations.
The move will free up money for spending on maintenance and the transmission and distribution parts of Eskom's business, which have faltered and created numerous and repeated blackouts.
"Our economy is facing significant risks," Finance Minister Enoch Godongwana said in his budget speech. "Uncertainty is on the rise. It requires us to do bold things."
Eskom's debt relief has strict conditions, Treasury said.
These include that the advance funding will take the form of an interest-free subordinated loan from the National Revenue Fund to be settled in Eskom shares rather than cash.
The funds can only be used to settle debt and interest payments and no new borrowing will be allowed until the end of the debt-relief period, unless written permission is granted by the finance minister.
Eskom's capital expenditure will also be restricted to transmission and distribution, no greenfield generation projects will be allowed during the debt-relief period, and proceeds from the sale of Eskom's non-core assets will be used for the debt-relief arrangement.
A key assumption in the debt-relief determination was the implementation of tariff increases (rate hikes), Treasury said, adding "without these increases, the debt-relief arrangement is not sustainable."
Treasury said about 168 billion rand of Eskom’s debt relief will be in capital and 86 billion rand in interest payments over the next three years.
Of this, 66 billion rand will be funded through the budget while 118 billion rand will be additional borrowing over the period, with government directly taking over up to 70 billion rand of Eskom’s loan portfolio in 2025/26.
Eskom is implementing the worst power outages on record, hurting economic growth that is projected at 0.9 % this year. President Cyril Ramaphosa declared a "state of disaster" over the energy crisis earlier this month.
South Africa has been struggling for years to overhaul Eskom, which is plagued by corruption and mismanagement and has received 263.4 billion rand in bailouts since 2008/09.
