Credit-negative
Providing Eskom, which has R419bn ($30bn) of debt, financial support before taking measures to generate savings at the utility would be credit-negative for the country, Moody's said. The remedies would entail "unpopular decisions" on electricity tariffs, it said.
Eskom's board held urgent talks with management and Public Enterprises Minister Pravin Gordhan on Monday, and called for an audit of the power system and an investigation on why new projects have been delayed, it said in a statement.
Medupi and Kusile, two new plants that will rank as among the world's biggest coal-fired facilities, are years behind schedule and significantly over budget.
Power cuts may cost the country as much as R5bn a day, according to the Organisation Undoing Tax Abuse, a civil-society group.
https://twitter.com/AntonEberhard/status/1094990980909092871
Regular supply interruptions are creating uncertainty that endangers businesses that are highly dependent on the utility, said Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, whose members consume more than 40% of the nation's power and include Anglo American Plc.
"We're going to see companies close in the smelting industry," Nel said. Between already-high tariffs and the spectre of more supply cuts, the victims will be "small foundries and smelters that shut down and never come back," he said.
The country is Africa's biggest steel producer, and Eskom first throttles supply to industrial customers before cutting retail consumers.
Tariff request
Eskom has asked for permission to raise power tariffs by 15% in each of the next three fiscal years, more than triple the average inflation rate over the past 12 months. If allowed, this would ease the government's contingent-liability risk but stoke inflation and weigh on economic growth, said Moody's. Small price increases would "maintain pressure on the company's very weak financial profile," it said.
A breakup into generation, distribution and transmission businesses will enable each unit to better manage costs and make it easier to raise funding, the government said. Credit-rating companies see Eskom as a key risk to Africa's most-industrialised economy, with blackouts and huge debt a drag on growth prospects.
https://twitter.com/PieterDuToit/status/1095191155472506880
Moody's is the only one of the three major ratings companies that has South African debt at investment grade. It raised the outlook on the assessment to stable from negative in March and will publish its next assessment on March 29, a month after the release of the 2019 budget.
Moody's comments are a reminder that major structural issues such as power insufficiency are serious constraints on the real economy and put pressure on public finances, said Piotr Matys, London-based emerging markets currency strategist at Rabobank.
"Those issues pose a major challenge for President Ramaphosa's administration," he said.
