According to the National Treasury, the package will also assist in supporting GDP growth.
“Eskom is facing significant challenges that threaten its sustainability. These include a funding gap that requires closing to ensure security of supply,” Treasury said in a statement.
“The main contributors to this gap include the fact that Eskom will not be generating enough revenues to cover the costs of electricity supply.”
Treasury also said that Eskom has been incurring additional costs to keep the lights on by running the more expensive power plants excessively due to a deterioration of performance of some of its coal plants and delays in the build program.
The Treasury also casts fears of a surge in tariffs.
“Firstly, government will support Eskom’s application to NERSA for tariff adjustments in line with the Regulatory process,” Treasury said.
According to the government, tariff adjustments remain the key mechanism that will provide the electricity supply industry with a sustainable solution, meaning that it will provide Eskom with the revenue and cash flows the utility needs.
(READ MORE: Eskom facing liquidity crisis as privatisation looms)
The statement also noted that tariff adjustments will help the power utility to complete the current programme of building power stations, repay debt and interests incurred.
The national power utility, Eskom will also be raising additional debt in the region of 50 billion rand, over and above its original plan of 200 billion rand during the third Multi Year Determination Period.
The government will also make interventions to ensure free basic electricity allocations are used effectively to bolster poor households from the impact of higher tariffs.
“Government will therefore assist municipalities address the current weaknesses in the use of free basic electricity allocations. In addition, government will implement a programme to improve the efficiency of municipal electricity operations.”