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Eskom mulls syndicated loan if bond-market conditions unsuitable

The utility has projected cashflow shortfall of R225 billion for the five years through March 2018.
South Africa’s power utility will consider obtaining a syndicated loan if the terms for a bond deal are unattractive.

“Depending on market conditions, we may want to also look at a syndicated loan facility — that will be a plan B to the global bond if the market conditions are not acceptable,” Eskom chief financial officer Anoj Singh told reporters in Johannesburg on Monday.

The utility that provides about 95% of power to the continent’s most industrialised economy has projected cashflow shortfall of R225 billion ($16 billion) for the five years through March 2018, the result of the energy regulator’s decision to grant the company half of the annual average tariff increase of 16% sought for the period. Eskom narrowed the gap to R191 billion through cost cutting, and plans to save a further R61.9 billion.

Last week, Eskom asked the National Energy Regulator of South Africa for permission to recover R22.8 billion of costs incurred in the year to March 2014. In June, Nersa rejected the utility’s request to raise prices by as much as 12% above an already-agreed 13% increase for the year to March 2016.

Cash Balances

Eskom should end the year with a cash balance of R10 billion to R15 billion, which will reduce the R47 billion funding requirement for the year starting April 1 to about R30 billion, Singh said. The remaining funds needed will come from the cost-clawback application, if granted, and from a “private placement” of R10 billion that has already been concluded, he said.

The company has also secured a facility from the African Development Bank, Singh said, without providing more details. Eskom will sign an agreement with the lender in the next few days and will make details available then, Khulu Phasiwe, a spokesman for the utility, said in a text message.

The utility could also liquidate an insurance claim for its Duvha 3 600-megawatt coal-fired plant, where excess pressure in a boiler caused the unit to trip in March last year. The company wouldn’t disclose the value of the claim as negotiations with the insurer are being concluded.

Financial Year

“The organisation is well positioned from a liquidity perspective for the rest of this financial year as well as the next financial year,” Singh said.

Eskom is struggling to meet demand after decades of underinvestment and delays in completing new plants. While it imposed power cuts on about 100 days earlier in the year, there have been less than three hours in the past three months.

While the grid remains tight, Eskom will be able to perform maintenance on its aging fleet of plants without having to resort to rolling blackouts until at least August, chief executive officer Brian Molefe said.

The company has connected an additional 43 projects by independent power producers, adding 2 021 megawatts of supply, he said.

©2015 Bloomberg News


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