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Eskom to tap global markets with sukuks

Jun 23 2015 14:48

Johannesburg - Eskom will issue Islamic bonds or sukuks in international markets, its acting chief executive said on Tuesday, as the cash-strapped utility sought a tariff increase.

Eskom, whose credit-rating was downgraded to junk in March by Standard & Poor's is battling to keep the lights on in South Africa.

Speaking at a public hearing held by the National Energy Regulator of South Africa (Nersa), acting CEO Brian Molefe said the utility will be approaching international bond markets with sukuks and other debt instruments.

READ: Nersa panel grills 'new' Eskom chief

"We will go to the international markets, there is a lot of sukuks that we will explore as well as private placements," said Molefe.

Molefe also said Eskom had reduced its price hike request to 9.5% from 12.7%, foregoing a 2.51% environmental levy, because the National Treasury might not pass it into law in time.

Eskom, which is facing its worst power shortages, was granted a 12.7% tariff hike in April and its latest request, if granted, would take price increases to a total of more than 22%.

The tariff hikes would be implemented next year, according to a circular issued by the National Treasury.

READ: Time not right to sell Eskom assets - Molefe

The increases were initially scheduled to take effect from July 1 this year, according to Eskom.

The Ferro-Alloy Producers Association of South Africa told the hearing that price increases could force a closure and divestment of some smelters and possibly lead to as much as 200 000 job losses in the sector.

"The increase in electricity prices will further increase production costs and lead to the closure of most smelters in South Africa," said Jacobus Zaayman, a representative of the Ferro-Alloys Producers Association, at the public hearing.

Zaayman said higher prices could force some companies to move their smelters to China - where electricity costs would be cheaper than in South Africa - if a price hike was implemented.

ALSO READ: What Yelland will tell Nersa about Eskom tariffs

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