Providing Eskom Holdings SOC Ltd. financial support before taking measures to generate savings at the utility would be credit-negative for the country, Moody’s said in an emailed report Monday. The remedies would entail “unpopular decisions on electricity tariffs and/or additional cost-cutting that would require agreement from key stakeholders,” it said.
Moody’s comments come as Eskom implemented so-called stage 4 rotational power cuts throughout the country on Monday. That involves taking 4,000 megawatts demand out of the system to prevent a complete collapse. While generation units have returned to service, others have continued to trip, according to the utility.
Power cuts may cost the country as much as 5 billion rand ($364 million) a day, according to the Organisation Undoing Tax Abuse, a civil-society group.
Regular supply interruptions are creating uncertainty that endangers businesses that are highly dependent on the utility, said Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, whose members consume more than 40 percent of the nation’s power and include Anglo American Plc.
“We’re going to see companies close in the smelting industry,” Nel said. Between already-high tariffs and the specter of more supply cuts, the victims will be “small foundries and smelters that shut down and never come back,” he said.
The country is Africa’s biggest steel producer, and Eskom first throttles supply to industrial customers before cutting retail consumers.
Eskom has asked for permission to raise power tariffs by 15 percent in each of the next three fiscal years, more than triple the average inflation rate over the past 12 months. If allowed, this would ease the government’s contingent-liability risk but stoke inflation and weigh on economic growth, said Moody’s. Small price increases would “maintain pressure on the company’s very weak financial profile,” it said.
Speaking in his state of the nation address last week, President Cyril Ramaphosa initiated a split of the state-owned electric company that is struggling under 419 billion rand of debt and declining demand. A breakup into generation, distribution and transmission businesses will enable each unit to better manage costs and make it easier to raise funding. Credit-rating companies see Eskom as a key risk to Africa’s most-industrialized economy, with blackouts and huge debt a drag on growth prospects.
Moody’s is the only one of the three major ratings companies that has South African debt at investment grade. It raised the outlook on the assessment to stable from negative in March and will publish its next assessment on March 29, a month after the release of the 2019 budget. Finance Minister Tito Mboweni will announce a turnaround plan and rescue package for Eskom in the Feb. 20 speech, Ramaphosa said last week.
The rand erased earlier gains, weakening as much as 0.8 percent to 13.7269 per dollar by 12:52 p.m. in Johannesburg. Yields on rand-denominated government bonds due December 2026 climbed 8 basis points to 8.73 percent, the highest this month.
Moody’s statement adds more negativity to South African markets on a day when dollar strength is hurting emerging-market currencies, said Matete Thulare, an analyst at FirstRand Bank Ltd.
“Markets will now wait for the budget on Feb. 20 to see what comments the agency has to make,” Thulare said. DM
Want to watch Richard Poplak’s audition for SA’s Got Talent?
Who doesn’t? Alas, it was removed by the host site for prolific swearing*... Now that we’ve got your attention, we thought we’d take the opportunity to talk to you about the small matter of book burning and freedom of speech.
Since its release, Pieter-Louis Myburgh’s book Gangster State, has sparked numerous fascist-like behavior from certain members of the public (and the State). There have been planned book burnings, disrupted launches and Ace Magashule has openly called him a liar. And just to say thanks, a R10m defamation suit has been lodged against the author.
Pieter-Louis Myburgh is our latest Scorpio Investigative journalist recruit and we’re not going to let him and his crucial book be silenced. When the Cape Town launch was postponed, Maverick Insider stepped in and relocated it to a secure location so that Pieter-Louis’ revelations could be heard by the public. If we’ve learnt one thing over the past ten years it is this: when anyone tries to infringe on our constitutional rights, we have to fight back. Every day, our journalists are uncovering more details and evidence of State Capture and its various reincarnations. The rot is deep and the threats, like this recent one to freedom of speech, are real. You can support the cause by becoming an Insider and help free the speech that can make a difference.
*No video of Richard Poplak auditioning for SA’s Got Talent actually exists. Unless it does and we don’t know about it please send it through.
"Advice is what we ask for when we already know the answer but wish we didn’t." ~ Erica Jong