Page 9 - Downstream Monitor - MEA Week 43

DMEA inVestment DMEA
by 2022. eskom currently has 44GW of generat- ing capacity, 36.5GW of which is provided at 15 large coal-fired power plants.
The key problem is the company’s ZAR450bn ($31bn) debt, which the company cannot now service. The government has already agreed to provide ZAR59bn ($4bn) per year for two years to shore up the company, as well as a ZAR230bn ($15.7bn) injection spread over the next decade. The paper gave no information about how the government will manage eskom’s debt.
The rand immediately dropped 1.1% when the paper was published, and sovereign bond yields rose.
Renewable energy
Meanwhile, Mineral Resources and energy Min- ister Gwede Mantashe said on October 29 that new bidding rounds for new generation to fill the estimated four-year supply gap would welcome interests from all forms of generation, not just renewables.
“We can’t deal with renewable energy pro- duces as if they are an emergency [measure]. We should treat them as a technology and not an emergency. When we open applications for new generation everybody will be able to bid for that, including renewable producers,” he said.
he said that one result of the new IRP was that the government would immediately look at 17 applications for distributed generation licences that had been on hold awaiting the details of the IRP. Plan (IRP) has been promulgated.
Mantashe’s refusal to approve new green projects is based on a distinct lack of enthusi- asm about renewables in the ANC and the trade unions, for whom eskom is often a source of political power and patronage.
Recent revelations of corruption at eskom and nuclear operator Necsa have highlighted close bonds between the power sector and ANC politics. eskom board member Busisiwe Mavuso told parliament this week that the company had experienced intense political pressure over the past year to keep the lights on irrespective of the cost.
Budget
There was little better news on October 30, when
Finance Minister Tito Mboweni in his budget speech confirmed that the government would give ZAR26bn ($1.8bn) to eskom this year. however, this is not new cash and forms part of the existing bail-out promises.
he also said that the government would pro- vide ZAR230bn ($15.7bn) over 10 years, as pre- viously promised.
he lowered the economic growth forecast to 0.5% for 2019 from February’s forecast of 1.5%. Growth would then rise to 1.7% in 2022.
Questions remain in how well the break-up of eskom is carried. The emergence of a truly inde- pendent and robust TSO that cannot be influ- enced by eskom will play a crucial role.
The sheer scale of eskom’s debt, its vulner- ability to blackouts and its absolute dependent on government policy for its financial and oper- ational future means the eskom will play a cen- tral role in South African politics for some time to come. The government may have outlined its reform plans, but it had yet to name a new CeO or board.
eskom’s problems are demonstrating by its daily notices about loadshedding, which again reached a peak two weeks ago because of tech- nical problems as the flagship Medupi power station.
eskom’s twitter account said on October 30 that no loadshedding was expected this week, which is good news of a sort.
however, the firm said that its power plants continued to remain vulnerable, and any unex- pected shift such as an increase in unplanned breakdowns could result in loadshedding at short notice.
This could be an accurate outline of the com- pany’s economic position as a whole. It is not going bust this week, but it could at any point in the future if unexpected events take place.
The next shock could be Moody’s review of the country’s sovereign debt on November 1. South Africa’s last investment grade credit rating is extremely vulnerable.
Any downgrade could create a powerful eco- nomic blow to the South African economy. This could cause $1.5bn of investment to immediately leave the country, the International Monetary Fund has warned.™
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