Moody's warns of significant Eskom hikes

2011-11-11 11:51

Johannesburg - Moody's Investor Service said on Friday it believes that significant above-inflation tariff increases are likely to be necessary for a couple of years for power utility Eskom to make the transition to full cost recovery.

In the note accompanying its change in outlook on Eskom's rating from stable to negative, Moody's said the annual tariff increases of about 25% over the second multi-year price determination period (MYPD 2) from April 2010 to March 2013 should allow Eskom's financial profile to improve over time - although this will depend on the timing of the build-out and the control of costs.

It said Eskom's financial credit metrics showed an improvement at the end of its financial year in March 2011 as it benefited from the implementation of higher tariffs.

However, it cautioned that the company's metrics could weaken again in 2012 as capital expenditure ramps up in line with the company's medium-term investment plan of about R453bn over the 2012 to 2017 period.

Moody's noted that the evolution of Eskom's financial profile over the medium to longer term will be influenced by additional factors.

"The first is the increase in tariffs for the third multi-year price determination period (MYPD 3, post-2013), which has yet to be decided," it said.

It added that an additional factor is the pace, scale and funding strategy for any further, as yet uncommitted, capital expenditure in the context of the country's long-term strategic plan, which calls for significant further investment.

Eskom dismisses outlook

Eskom said on Friday that while Moody's had changed the outlook on its rating to negative from stable, it believes its fundamentals continue to improve.

The change in outlook was anticipated following an announcement by Moody's earlier in the week that it had changed its outlook on SA's A3 local and foreign currency government debt ratings to negative from stable.

"Eskom's fundamentals continue to improve and we continue to progress with our committed capital expenditure programme, which will provide much-needed electricity capacity and drive growth in the economy," Eskom said.

  • 100003064479469 - 2011-11-11 12:58

    Eskom should stop with their wasting of money. Start looking after the millions, the billions will look after themselves.

      Henry - 2011-11-11 15:19

      Drop their salaries and bonuses which they gave to themselves after they got the first 25% If you look after your expenses the nett income will be OK

  • johan steenberg - 2011-11-11 14:31

    Tipical South African attitude. Agnore the advice of a respected business authority and say well we don't care were growing. Laughable

      march - 2011-11-11 15:55

      Come on!? A "respected business authority" that could not predict the Credit Crunch of 2008!??

  • Lynn - 2011-11-11 14:32

    Have Eskom not be saying for the past 2 years that they will require multiyear increases in electrical tariff at levels significantly above inflation? And have been awarded such tariffs. Is Moody's access to information and analysis so slow and poor that they only become aware of that fact now? I would be concerned about their credibility

      march - 2011-11-11 15:38

      I don't believe Moody's have any credibility left - they couldn't predict the Credit Crunch of 2008

      louisth16 - 2011-11-11 17:37

      It costs money to build generators to produce electricity and the consumers have to pay for it. The focus should be helping the people of SA to earn enough money to pay for their electricity. The ANC went around telling the people that the government would give everyone free electricity and this was all hogwash.

      100003064479469 - 2011-11-12 06:12

      Big electrical comsumers are paying four times less than domestic consumers.

  • Judith - 2011-11-11 14:40

    Eskom is preventing access to power by many communities with their excessive price rises which are placed on consumers rather than industry. We all have to convert to solar and other renewables so that we can get off their grid for good

  • SpasatSea - 2011-11-11 15:34

    Carry on increasing electricity rates at this pace and frequency and YOU will have a riot on your hands in the not to distant future - because of poor planning and bad management the citizens of this country are being drained financialy at an unprecedented pace and the BUBBLE will burst !!

      100003064479469 - 2011-11-12 06:13

      Matter of time. Tick, tock, tick, tock.

  • Appietrader - 2011-11-11 16:31

    Eskom should eradicate the theft of electricity and stop the crazy yearly bonuses to cadres. Thieves steal as much than a smaller plant can generate per day. Increase in tariffs will contribute in investors shy away from SA. Eskom should rated Useless instead of Negative!!

  • gpwengineer - 2011-11-11 20:25

    Eskom Management obviously has no respect for the publics money. They just came from another conference at Spier in the Western Cape lasting two days. 300 managers. Why the hell at Spier. Put them in a bloody school hall and save some money.

      100003064479469 - 2011-11-12 06:29

      You have no idea how much money is wasted by Eksdom. We did a project for them. Arivia is their IT supplier. Hardware much be purchased through them although they are up to two times more expensive. Then they will charge Eksdom service fees that is so high that the hardware could have being replaced after 3 years and you'll have some spare cash left. They bought chairs at R3k per chair.

  • HNLansdell - 2011-11-12 21:11

    Why does Moody's have to break the news? It is because the Eishcom top brass are too scared to do so. This is a disaster in the making for S.A. consumers and it will in the end, cause S.A. companies and Foreign companies to re-locate to other bases.

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