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Eskom reviews ‘major impact’ of curbs on higher power prices

Liquidity levels ‘remain sufficient’ for power producer.

Eskom, the South African power utility battling to maintain liquidity, said there will be a “major impact” from the regulator’s decision last month to grant only a quarter of its requested tariff increase.

The National Energy Regulator of South Africa gave the cash-strapped utility permission to raise prices by 5.2% from April 1, far short of the almost 20% Eskom had applied for.

“Eskom is still in the process of reviewing and modeling this lower tariff determination and potential impact on the business and financial sustainability,” the state-owned company said in an e-mailed response to questions.

After a decade of electricity prices increasing by an average of double the rate of inflation, the regulator said in December that it would only allow costs that Eskom had “prudently” incurred. The producer is the biggest recipient of state guarantees at a time when domestic power demand is the lowest in more than ten years and as South Africa’s finances buckle under lower tax revenue and rising debt.

Public Enterprises Minister Lynne Brown has written to the regulator, asking it to speed up processing of requests by the utility to recoup unforeseen expenses through higher power prices, the National Treasury said in an emailed response to questions.

Borrowing options

The utility said its borrowing options include issuing international bonds and drawing down existing loans from export credit agencies and development finance institutions. It will not “at this stage” seek a cash injection from the government, Eskom said. It’s targeting the end of the month to release delayed interim results for the period to September.

The company needs R20 billion of funding by the end of its fiscal year on March 31, the Mail & Guardian newspaper reported, citing Eskom. Accessing funding in local and international markets has been difficult because of concerns over the utility’s governance, it said.

Goldman Sachs Group Inc. in September said the utility was the biggest single risk to the South African economy and that the government needed to replace its management.

Moody’s Investors Service cut Eskom’s credit rating to a deeper junk level in November, citing poor governance, weakening liquidity and the decreasing likelihood of government support. Liquidity levels “remain sufficient,” the utility said this week.

© 2018 Bloomberg L.P

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I don’t see a problem with cash flow here. Eskom can always borrow money from their associate company, Gupta & Associates(Pty) Ltd. In view of all the contracts that they have “awarded” the latter, Eskom’s credibility surely most be very good with Gupta & Associates (Pty) Ltd.

Time to get of the grid myself. Don’t see why I should continue to support this corrupt entity! The rest of the world goes green and use renewables yet in zuptastan we need nuclear so that the cronies can be further enriched! Well done Nersa!!!

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