Moody’s says Eskom bailout is credit negative, but other options are worse

On Thursday, Moody’s took the SA government to task for the decision to throw good money after bad at Eskom, saying the move is “credit negative” for the country.

As far as it goes, Moody’s is quite correct. Pouring tens of billions of additional rands into the Eskom black hole – with nary a plan for the utility’s revival to be seen – is obviously not ideal.

But in the government’s defence, it’s the least bad option currently available. Allowing Eskom to collapse under the weight of its own failures would almost certainly trigger a run on the utility’s debts by creditors. Since the SA government has guaranteed about R350bn of it, that means a pretty big bill suddenly coming due. Spending R75bn this year is bad. Spending R350bn would be a lot worse.

To give credit where it’s due, Moody’s is right about another thing: “The lack of a strategy to return Eskom to a more stable financial situation that would reduce the need for government support exacerbates the problem for the government.” You’re telling us.