Moody’s has downgraded Eskom’s credit rating to junk
South African electricity consumption is growing and increased 0.5% last year reflecting modest growth in the economy, Investec Bank economist Kamilla Kaplan said on Thursday.
This is a marked improvement after it fell by 1% in 2015. And consumption is likely to lift further as the recovering economic growth. The boost in confidence levels will also result in increased investment rates, which will rely on the newly elected board at Eskom, expected to address leadership and governance challenges at the state-owned entity, in order to restore market and lender sentiment.
The rate of electricity production last year however remained unchanged compared to 2016.
Kaplan added that part of Eskom’s precarious financial position was as a result of the low electricity tariff increase granted by National Energy Regulator of South Africa in 2017 and 2018.
At its interim results announced on Tuesday, Eskom said its revenue has been negatively affected by the reduction in electricity demand during the period ended September 30, mainly as a result of low economic growth and customers turning to their own supply.
“For the time being however, both Moody’s and Fitch downgraded Eskom and cautioned of further possible downgrades”, said Kaplan.
Moody’s has downgraded Eskom’s credit rating to junk, and has said that the implementation of a sustainable long-term business, financial and funding plan is one of the ratings criteria to be met in order for the power utility to avoid being downgraded further.
The rating action was underpinned by heightened liquidity risks and limited scope for government support, said Kaplan.