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Cape Town - The government is stepping up its support for state-owned power firm Eskom and will be underwriting and fast-forwarding payments of its R60bn loan to the utility.
Eskom on Thursday showed shrinking profits for the year to end-March 2008 and said it was forecasting a net loss after interest of slightly below R3bn for financial 2009.
Eskom also failed to secure the 60% tariff increase it deems necessary to meet substantially increasing demand for power.
Energy regulator Nersa only approved a 27.5% increase, which promoted government to reconsider the helping hand it offered Eskom in February this year in the form of a loan for the capital expansion programme.
Finance minister Trevor Manuel announced that government's loan would be paid out over a five-year period - R20bn for the 2008/9 to 2010/11 fiscal years.
But, the government will now pay out R10bn in 2008/9, R30bn in 2009/10 and R20bn in 2010/1.
The terms and conditions of the loan have been designed to be a deeply subordinated loan to ensure that senior unsecured lenders are not prejudiced, says the national treasury's director general Lesetja Kganyago.
"This move from a major shareholder is to say that government has confidence in Eskom and that the balance sheet is under pressure for no other reason than the utility's accelerated investment programme," says Kganyago, who adds that in addition to the subordinated loan, government will consider providing guarantees to enable Eskom to access funding otherwise not available.
"Government is cognisant of Eskom's critical role in the economy and the importance of a solid investment grade credit rating and thus remains committed to ensuring Eskom's financial stability," reads a statement that treasury released on announcing the changes.
- Fin24.com