Fitch warns on power shortages

Johannesburg - The risk of electricity supply shortages remains high across Southern African Development Community (SADC) countries in the short- to medium-term, Fitch Ratings warned on Thursday.

"This is due to the age of existing power plants, grid bottlenecks, limited inter-connections, high levels of required maintenance, and low reserve margins," said Fitch in a report.

The ratings agency believes that the long lead time associated with the commissioning of required new generation capacity to meet future demand, as well as significant funding costs, will remain key obstacles for all the Southern African Power Pool member countries over the medium-term, and most importantly for the main regional generator Eskom.

The agency presently rates Eskom's Long-term local currency Issuer Default Rating (IDR) at 'A' with a Negative Outlook, National Long-term rating at 'AAA (zaf)', and National Short-term rating at 'F1+ (zaf)'.

"The required capex for both generation and transmission projects across the SAPP is expected to adversely affect the standalone credit profiles of regional electricity utilities in the short- to medium-term," said Fitch's South African corporate team director Roelof Steenekamp.

"However, utility ratings in the region are supported by state-ownership and the support received from their respective governments. A combination of large electricity tariff increases, improved efficiency, and increased explicit government support will be required to soften the impact of new investments on leverage ratios and free cash flow," Steenekamp added.

Fitch noted that limited quick-fix solutions are available, and that over time, new generation capacity could also be rolled out by independent power producers, but the timing for this will, among other factors, depend on improvements to regulatory frameworks, the differing legal environments, concessions, and progress towards achieving cost-reflective tariffs to allow for acceptable returns on investment.

- I-Net Bridge