This opinion piece appeared in the Business Day on 26 October 2016

Energy Minister Tina Joemat-Pettersson says Eskom, and Eskom alone, would fund the proposed nuclear procurement. She told Parliament’s energy portfolio committee that “there is no basket of money in Treasury that will be used for this programme.

“The balance sheet of Eskom will be used to leverage access to funding … the money will be found off the global markets. The fiscus would not fund the programme.”

She proposed that her department would simply act as “programme co-ordinator” for the procurement process. This raises an important question: Given the perilous state of Eskom’s finances, how does it intend to raise sufficient private capital to fund the procurement without tapping into the national revenue fund?

The Treasury has been doling out vast sums of money to Eskom since 2008 to keep it from bankruptcy. The 2008 budget included a subordinated loan of R60bn for Eskom. At the time, then finance minister Trevor Manuel said the electricity power utility must in the future “fund itself”. A year later, Manuel approved a R176bn loan guarantee for Eskom to assist it in its efforts to raise private capital.

In October 2010, this loan guarantee was extended to R350bn. In June 2015, the entire R60bn subordinated loan from 2008 was converted into equity. A month later, the government passed the Eskom Special Appropriation Act, which disposed of its 13% stake in Vodacom to inject another R23bn of equity into Eskom (the company had asked for R50bn). During this process, Eskom’s credit rating was reduced to “junk” by S&P Global Ratings.

In July, Finance Minister Pravin Gordhan lamented the fact that Eskom had already accessed more than R200bn of the Treasury’s loan guarantees, cautioning that this put the government in a vulnerable financial position should creditors become nervous about their investments. In September, it was revealed that Eskom’s debt now stood at R327bn, about 15% of all government debt. This parlous state has been reached despite the fact that Eskom has also, since 2008, increased the average electricity tariff by a staggering 151%.

Eskom’s current credit rating with Moody’s is one rank above “junk”, with a “negative outlook”.

So bad is the investment situation at Eskom that two investors have jumped ship. In recent months, Futuregrowth Asset Management and the Danish Jyske Bank have halted lending to Eskom.

How on earth, within this context, can Eskom raise the necessary capital for a nuclear procurement programme that is expected to cost at least R500bn, with more realistic estimates putting the figure closer to R1-trillion (based on international experience and the catastrophic cost overruns at Medupi and Kusile)?

If Eskom tries to raise capital on the global market, will it do so with yet more Treasury guarantees, and what effect will such guarantees have on the entire government’s creditworthiness? Government debt as a percentage of GDP was 28% in 2008; it is currently approaching 50%).

But perhaps the government knows the answer to this question already? It knows that Eskom cannot possibly fund the procurement off its own balance sheet. Perhaps it’s not concerned because it already knows that the Russians will finance the deal. In 2015, Rosatom’s deputy director-general Kirill Komarov and its vice-president for sub-Saharan Africa, Viktor Polikarpov, offered to fund the entire procurement. Komarov spoke about “government-to-government loans”, while Polikarpov spoke of “really lucrative” 20-year loans that could be offered by Rosatom.

Perhaps this is the financing endgame — a marriage of interests between two kleptocratic state executives gorging on their respective national revenue funds. The truth will no doubt be revealed at the conclusion of the current public brawl between Gordhan and President Jacob Zuma over who has the keys to the national revenue fund.