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Eskom reform plans dismissed as optimistic
SOUTH AFRICA
THE South African government’s three-year plans to save Eskom were dubbed “somewhat optimistic” by S&P Global Ratings this week, although Pretoria’s support package is set to reduce the risk of any debt default.
“The reform timeline is somewhat optimis- tic,” said the agency, although “improved finan- cial flexibility introduced by the support package reduces the risk of unintentionally triggering a default at Eskom, or of its debt guaranteed by the sovereign”.
S&P warned that unbundling the company into separate generation, transmission and sup- ply businesses would require sweeping changes to systems and processes, ownership of assets and contracts, as well as laws and regulations.
However, the government has yet to publish detailed plans for shouldering some of Eskom’s ZAR450bn rand ($30bn) debt, and S&P said that the government was unlikely to manage to trans- fer some of the debt before 2022.
“Successful reform will also require some form of restructuring of Eskom’s debt, which is critical to normalising Eskom’s leverage, and on which the roadmap and [medium-term budget policy statement) were silent. This aspect would require extensive lender and other stakeholder engagement, including concomitant debt sup- port, which we see as unlikely to be contem- plated before 2022,” it said.
S&P maintained its junk-level ‘CCC+’ issuer credit rating with a stable outlook for Eskom.
Only Moody’s has maintained its investment level rating for the company, although it too has warned that it could lower this if reforms are not pushed through.
The government has initially promised to give Eskom more than ZAR100bn ($6.7bn) in fund- ing over the next two years, as well as a longer- term 10-year aid package.
However, S&P said Eskom still had to find ZAR50bn ($2.4bn) each year for the next two years in order to fill the holes in its operating debts, as some of its debt falls due.
The government’s roadmap for Eskom, pub- lished in October, called for the break-up of the company and the loss of its generating monopoly to cheaper independent power producers (IPPs).
The government intends to break off trans- mission by the end of March 2020 and to com- plete the creation of three new units under an umbrella holding company in 2022.
Finance Minister Tito Mboweni said in his recent budget statement that the restructuring plan must be implemented before the govern- ment could consider debt relief.
Last week, the government appointed Andre de Ruyter, CEO of pan-African packaging com- pany Nampak and a former Sasol executive, as the new Eskom boss.
Local media reported that up to 19 candi- dates, many connected with Eskom and the ANC, had refused to accept the job before de Ruyter accepted.
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w w w . N E W S B A S E . c o m Week 47 28•November•2019
