Global Courant
According to Moody’s Investors Service, South Africa’s plan to ease the debt burden of the struggling energy company and possibly write off council arrears to Eskom will ultimately improve liquidity and reduce funding risks for the government.
The proposed R254 billion aid announced in the February budget aims to strengthen Eskom’s balance sheet and cover all interest payments over the next three years, provided it engages private partners to help operate of its power stations and the electricity transmission network.
That would free up money for the utility to perform plant maintenance and improve transmission and distribution infrastructure as the country struggles with electricity rationing on an almost daily basis.
“If Eskom is able to implement the plan, which includes operational efficiency improvements, it would benefit the wider economy, including the state, municipalities, banks and companies,” said the rating agency analysts, including Benedicte Andries and Aurelien Mali, in a note on Wednesday.
The proposal is also credit positive for Eskom because it will strengthen its balance sheet and reduce cash flow pressure, Moody’s said. It will also significantly reduce the risk of non-payment of Eskom’s debts over the next three years.
Eskom has been living on state bailouts for years because it cannot raise enough revenue to cover its operating expenses and pay off its loans. Acute failures of the poorly maintained coal plants have slowed efforts to restore profitability and led to chronic electricity shortages.
Positive for banks
The divestment began in 2008 and has hampered the South African economy, weakened the rand and increased inflation. The central bank estimates that they have cut 2 percentage points from the country’s economic growth this year.
“Load shedding has led to significant disruption, reduced business confidence and increased uncertainty in the labor market,” said Moody’s.
The Eskom and municipal debt relief plan is also likely to have a positive impact on the government-owned Development Bank of Southern Africa, whose exposure to the utility and local governments accounts for more than 50% of its total assets, the rating agency said. .
It would also be positive for larger South African banks, albeit to a lesser extent, as their exposure to the broader public sector is about 2% of gross loans and about 14% of equity, Moody’s added.
Read: Warning to South Africans looking to install solar or inverters to escape load loss
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