South Africa has unveiled the largest bailout in the country’s history for Eskom, the struggling state power monopoly, whose financial troubles have pushed it to the brink of collapse and caused rolling national blackouts.

The government will inject R69bn ($4.8bn) over three years to stabilise Eskom’s $30bn debt as it attempts a turnround, Tito Mboweni, South Africa’s finance minister, said on Wednesday as he delivered the national budget.

The risk of a collapse at Eskom is a serious threat to South Africa’s already stretched public finances as its debt is mostly state-guaranteed. Without a plan to control Eskom’s rising costs, a bailout could also imperil the country’s last remaining investment-grade credit rating, with Moody’s.

The crisis at Eskom has plunged Africa’s most industrialised nation into periods of darkness and throttled its economic recovery. The country receives nearly all of its power from ageing coal-fired plants that Eskom has failed to maintain or replace even as costs spiralled during a decade of decline at the utility.

“Pouring money directly into Eskom in its current form is like pouring water into a sieve,” Mr Mboweni said on Wednesday. He insisted the bailout was conditional on Eskom achieving steep cost cuts of more than R20bn per year, and on the imposition of a Treasury-appointed “chief reorganisation officer”.

The bailout also depends on a plan announced by President Cyril Ramaphosa this month to split up Eskom’s power stations, distribution networks and grids into three separate businesses. The unbundling plan has met fierce resistance from trade unions, including some allied to Mr Ramaphosa’s ruling African National Congress.

Years of mismanagement have left Eskom unable to finance even basic maintenance at old stations. Its balance sheet is also being overwhelmed by huge cost overruns at unfinished new plants that were meant to solve the country’s energy crisis.

The utility sells less electricity than it did a decade ago even as its staff numbers and costs have bloated over the same period. With cash drying up, Eskom can only repay current debts by borrowing more money.

Corruption and patronage at Eskom was also central to a sprawling graft scandal under Jacob Zuma, the former president replaced by Mr Ramaphosa a year ago.

Eskom’s bailout will partly be paid for through government spending cuts such as early retirement for more civil servants. It comes at the cost of deteriorating state finances.

This year’s budget deficit will be bigger than expected at more than 4 per cent of gross domestic product, while state debt as a share of GDP will rise to more than 60 per cent and peak later than hoped, Mr Mboweni said.

In order to fund Eskom’s bailout, the Treasury will also breach a state expenditure threshold that credit rating agencies have typically seen as a red line.

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Peter Attard Montalto, analyst at South Africa’s Intellidex research company, said it was unlikely Eskom’s bailout would be the last. “I do not see how you can deliver R20bn of cost savings when you are funding an unbundling that will cost money in itself,” he said.

The bailout’s form means Mr Mboweni rejected a plan by Eskom’s own managers for the state to take over $7bn of its debt. “The national government is not taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it,” he said.

Phakamani Hadebe, Eskom’s chief executive, said a bailout would support two-thirds to three-quarters of its debt servicing costs in three year period. “It releases resources to do maintenance and we will be in a better state than we are now,” he said.

The Eskom crisis is only being partly dealt with. This will kick the can down the road until after the May general election

According to Treasury estimates, Eskom’s financial black hole will require R150bn ($10bn) overall over the next decade.

The Treasury hopes that higher economic growth and increased tariffs paid by Eskom’s customers will be able to plug the gap left by the state bailout.

Eskom’s split into three businesses will be partly financed by allowing private investors to take a stake in the newly-independent state transmission grid, according to Wednesday’s budget.

“The Eskom crisis is only being partly dealt with,” said Alf Lees, Mr Mboweni’s shadow at the main opposition Democratic Alliance.

“This will kick the can down the road until after the May general election when we can expect a more substantial funding of Eskom to be announced” at a medium-term budget later this year, Mr Lees added.

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