Johannesburg - Power utility Eskom faces an enormous funding hurdle not only because of the global financial market meltdown, but also because its expansion spending has more than doubled to R343bn.
Eskom originally planned to spend R150bn over the next five years to 2013, but an AFP report on Monday quoted an Eskom official as saying that the figure had been revised upwards "to reflect current realities in the international market".
"The prices of things we need to procure under the programme are
sky-rocketing and we need to factor these into our budgetary projections," the report quoted the official as saying.
Eskom indirectly confirmed the new expansion budget on its website, where it said capacity expansion was still expected to grow to more than R1 trillion by 2026.
Ultimately Eskom will double its capacity to 80 000MW by 2026.
Eskom is building additional power stations and major power lines on a massive scale to meet rising electricity demand in South Africa.
Since the programme started in 2005, an additional 2 582MW has been commissioned and the utility plans to deliver an additional 16 304MW in power station capacity by 2017.
Questions raised
Projects to generate more electricity account for 73% of Eskom's massive build budget, with the balance being spent on improving the transmission system to deliver power around the country.
But the global financial meltdown has raised questions over Eskom's ability to raise the required funding.
The utility announced last week that it had postponed its plans to sell $500m of bonds internationally because the global financial turmoil was pushing up borrowing costs.
Eskom had initially aimed to issue bonds on the international market before the end of 2008.
While Eskom has not provided exact details on its fund-raising plans, the capital was expected to be raised through the issue of bonds, increased tariffs and local and international debt.
But South Africa's Finance Minister Trevor Manuel warned last week that Eskom's borrowing plans would probably be affected by the global financial crisis.
"It's going to be a lot tougher and may impact on the cost of
infrastructure," Manuel told Business Day.
New way of thinking
Manuel also warned that the crisis would spark a new way of thinking in the financial world.
"The bottom line is that in the next while - and it's not going to be six months or a year but probably two years - there will probably be enormous recalibration of what we do and how we finance it," he said.
Besides its contribution of R60bn to Eskom's capital, the
South African government intends to guarantee the power utility's debt.
South Africa's National Treasury said in August that it was prepared to guarantee Eskom's existing debt if it needed to.
This was after ratings agency Moody's downgraded its foreign currency credit rating by three levels to BAA2, the second-lowest investment grade.
Eskom's announcement that it has submitted an application to the National Treasury for guarantees on all existing and future debt has since resulted in ratings agency Standard & Poor's revisiting its local currency CreditWatch for Eskom from 'negative' to 'developing'.
Last month National Treasury director general Lesetja Kganyago said Eskom was experiencing a cashflow mismatch.
Unusually silent
The guarantees are expected to see Eskom through its funding problems.
In the meantime, government spokesperson Themba Maseko told journalists at a post-cabinet meeting last Thursday that Eskom would have to see how the global turmoil affected its ability to raise capital internationally.
"They may have to come back to source funding in the local
He added that it was ultimately up to Eskom to decide whether to put an alternative plan in place.
It was also up to Eskom to decide whether to delay the build programme or not.
But Eskom has been unusually silent on this front.
The utility has yet to release any statement on the likelihood of a funding rethink or even comment on the impact of the financial meltdown.
- I-Net Bridge