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Govt aid, tariffs may not be enough for debt-laden Eskom - Moody's

Apr 02 2019 13:37
Fin24

Ratings agency Moody's on Tuesday said that government's financial support to embattled power utility Eskom and the announcement of recent electricity tariffs by the National Energy Regulator of SA may prove "insufficient to address the company's long-standing financial troubles".

It also said that it expected SA's credit profile to remain in line with Baa3-rated sovereigns.

The ratings agency published a credit opinion for South Africa on Tuesday, four days after the agency again skipped issuing a much-anticipated assessment of South Africa's sovereign credit rating.  

A credit opinion is not the same as a rating review and SA's credit profile has not been altered. 

Finance Minister Tito Mboweni in the 2019 Budget allocated a R69bn financial support package over the next three years to help Eskom service its debts. The amount over 10 years has been estimated at R150bn. 


Energy regulator Nersa, meanwhile, in early March approved electricity hikes of 9.41%, 8.1% and 5.2% for the next three financial years. This was below Eskom’s application for double-digit tariff increases. Including the 4.4% increase previously approved, the hike totals 13.81% for 2019/20.

Moody's, the sole ratings agency to still assess SA at investment grade, said in the opinion that Eskom will remain the main source of contingent liability risk for the government.

The power utility is about R420bn in debt. "Its debt amounts to around 8% of GDP, of which 5% of GDP benefits from government guarantees," it said.

Public Enterprises Minister Pravin Gordhan and chairman of the Eskom board Jabu Mabuza are expected to brief the media on the state of SA's electricity supply on Wednesday. This follows a previous media briefing about two weeks ago when the country was gripped by power cuts.

Eskom has previously blamed ageing power plants and insufficient maintenance as among the reasons for load shedding.

The Zondo Commission of Inquiry has also since heard of various allegations related to the power utility and state capture.

Credit profile to remain in line with Baa3-rated sovereigns

Moody's currently has SA's sovereign debt rated at Baa3, the lowest rung of investment grade.

"While economic growth will remain slow and fiscal strength will continue eroding, we expect South Africa's credit profile to remain in line with those of Baa3-rated sovereigns. We expect that the government's policies and the institutions will remain focused on addressing this trend but any reversal will be gradual at best given that social, economic and fiscal policy objectives will remain difficult to reconcile," it said. 

The agency said it expected President Cyril Ramaphosa's reform agenda to become clearer after the May 8 elections. 

"The gradual implementation of the reform agenda of the new administration, combined with the reduction in political uncertainty following the May elections, will have a positive impact on confidence and lead to a gradual improvement in economic conditions."

The agency expects growth to pick up modestly to 1.3% in 2019, and converging to 1.5% over the following years

moody’s  |  credit ratings
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