Erwin: Moody’s Eskom downgrade cause for concern

The recent rating downgrade of power utility Eskom by Moody’s is a concern and may endanger plans to source billions of rands from international capital markets, Public Enterprises Minister Alec Erwin said on Tuesday.

Eskom has embarked on a long-term expansion programme, which includes building new nuclear power stations, as Africa’s strongest economy battles a chronic power shortage that has led to lower output in key mining, smelter and manufacturing sectors.

But a decision last month by Moody’s to lower Eskom’s local and foreign-currency ratings has put pressure on the company to secure the necessary funding amid a global credit crunch.

”The recent downgrading by Moody’s is a concern, and we must avert any potential future downgrades by other ratings agencies,” Erwin.

Ratings agency Standard and Poor’s has placed Eskom on ”credit watch”, damaging efforts to secure international funding and prompting Eskom to seek alternative sources, such as with the World Bank.

”The health of Eskom’s balance sheet therefore remains critical as it goes into both local and international capital markets for borrowing,” he said in a text of a speech.

South Africa’s energy regulator in June agreed an average 27,5% electricity price increase for 2008/09, about half of what Eskom asked for as it sought to boost its coffers and cover sharply higher coal prices.

The National Treasury has agreed to provide R60-billion over the next three years to help Eskom pay for the R343-billion needed over the next five years to boost capacity.

The figure is projected to reach R1,3-trillion by 2026 to add 40 000MW to the grid.

But, with South African consumers paying among the world’s cheapest prices, Erwin reiterated the need for higher tariffs.

”Electricity tariffs must start to reflect the real costs of its production,” he said.

Erwin warned that South Africa would remain vulnerable to power cuts during the coming southern hemisphere summer as Eskom started maintenance work.

Ageing equipment in the company’s predominantly coal-fired power plants has been operating at near capacity to avert blackouts, putting the grid at risk of technical problems.

South Africa’s mines, including the world biggest platinum and key gold operations, were forced to shut down for five days in January as the power system came close to collapse. Consumers have been asked to cut demand. — Reuters

We make it make sense

If this story helped you navigate your world, subscribe to the M&G today for just R30 for the first three months

Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Wendell Roelf
Wendell Roelf has over 48 followers on Twitter.

Related stories

WELCOME TO YOUR M&G

Already a subscriber? Sign in here

Advertising

Latest stories

Tutu Puoane back on the South African stage after two...

She may have left South Africa more than 20 years ago, but this jazz singer is still firmly rooted in her heritage

Pandor: Blinken did not come to tell SA to choose...

The US secretary of state said that when one country invades another country, sovereignty and independence mattered

Emerging technologies show a clear pathway to ending the age...

We have all the tools we need to usher in a new era of superabundance but we need to ditch dying industries such as fossil fuel and livestock fast

Malibongwe festival returns with a tribute to women

Female artists celebrate Women’s Day and their achievements in the music world
Advertising

press releases

Loading latest Press Releases…
×