Utility needs bailout or it ‘ceases to exit’

Eskom needs a cash injection by April to survive, the public enterprises department warned yesterday, as the struggling stateowned firm cut electricity for a fourth straight day.

Eskom, which has more than $30 billion of debt, is battling a shortage of capacity that threatens to derail government plans to lift the sluggish economy.

President Cyril Ramaphosa said last week the government would support Eskom’s balance sheet and the details would be announced in the finance minister’s budget speech on February 20.

The department of public enterprises, which oversees Eskom, said in a presentation to parliament Eskom was technically insolvent and would “cease to exist” at the current trajectory by April, unless it gets a bailout. Minister Pravin Gordhan, however, ruled out privatisation of the utility.

“With Eskom in the midst of trying to find a solution to its financing needs, investors are more nervous as to what this means to (rating agency) Moody’s,” Citi economist Gina Schoeman said.

“Markets are highly sensitive to even a negative outlook decision because of how close this places SouthAfrica to a WGBI-exit and inevitable rand depreciation and increased vulnerabilities,” she added, referring to the World Government Bond Index.

Moody’s is scheduled to review the sovereign on March 29. SA is rated “junk” by S&P Global Ratings and Fitch and if Moody’s joins them, the country will be booted out of the World Government Bond Index which may prompt investors to dump its assets.

Frustration

The public enterprises department said Eskom was struggling to keep its mainly coal-fired plants running due to coal shortages and poor maintenance, with 40% of breakdowns a result of human error.

The cash-strapped company said it would cut 3 000 megawatts (MW) of power from the grid yesterday. This followed a similar cut on Tuesday and 4 000 MW on Monday in the worst power cuts in several years that drove the rand down on Monday.

The power cuts have frustrated ordinary South Africans with traffic gridlocks as traffic lights stopped working.

Gordhan said the government was worried about the impact power outages could have on the economy.

“Eskom’s board is taking steps to ensure that load shedding doesn’t become a permanent feature this year.” – Reuters