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S.Africa Takes on Eskom Debt to Keep It Afloat

FILE - Locals walk past electricity pylons during frequent power outages from South African utility Eskom, in Soweto, South Africa, April 4, 2022.

South Africa's treasury vowed Wednesday to take over more than half of Eskom's multi-billion-dollar debt to ensure the embattled energy utility's viability and curb the energy crisis that has put a break on growth.

In a mini budget statement, Finance Minister Enoch Godongwana said government has decided to give Eskom 225 billion rand ($12.4 billion) towards debt for the period 2019 to 2026.

"The program will allow Eskom to focus on plant performance and capital investment," the minister said before parliament, adding the debt takeover will ensure the company no longer relies on government bailouts.

Eskom, which he labelled the biggest risk to the economy, is bucking under a 400-billion-rand debt.

"The debt takeover, once finalized, together with other reforms will ensure that Eskom is financially sustainable," he said.

The government has for more than a decade poured billions of rands into Eskom, "with limited improvements in the reliability of the electricity supply or the financial health of the company," he said.

Sweeping power outages, caused by failures at aging and poorly maintained infrastructure at Eskom — which provides almost all of South Africa's electricity — have worsened in recent months.

Economists have welcomed the government's move on Eskom, but said more needs to be done.

"Transferring between one-third and two-thirds of Eskom's debt to the government will support the corporation's financial sustainability," said Aurelien Mali, of Moody's Investors Service.

"But will not alone resolve its maintenance and operational challenges, which continue to be a drag on the South African economy," added Mali.

Constraints in transport industries have also severely impacted economic activity.

In October, workers at Transnet, a state rail and port logistics firm, went on a weeks-long strike that crippled South Africa's economy, stranded mineral and fresh fruit exports and cost mining firms $45 million in exports a day, according to industry group Minerals Council South Africa.

In addition to recurring power cuts economic recovery has also been hampered by a series of shocks.

These include massive damage caused by riots, which broke out in July 2021 following former president Jacob Zuma's jailing, unprecedented floods that swept through the third largest city of Durban and soaring fuel and food prices triggered by the Russia-Ukraine war.

President Cyril Ramaphosa recently targeted reducing inflation to 5.1% in 2023, following a peak of 7.8% last July — the highest level in 13 years.

Projected economic growth for this year is 1.9%, falling from 4.9% in 2021.