ESKOM’s failure to put an end to power cuts will be a reality check for Finance Minister Enoch Godongwana when he delivers his maiden Medium-Term Budget Policy Statement (MTBPS) in two weeks as he tries to boost confidence, with ratings agencies waiting on the wings to issue a review.
The electricity crisis in South Africa continued to rage on yesterday, despite the government’s assurances that load shedding would be downgraded from Stage 4 to Stage 3 overnight. The power utility has warned of more power cuts for the next 10 months if it does not get an additional 4 000 megawatt on an emergency basis as it continues with its fleet maintenance programme.
South Africa’s economy is haemorrhaging more than R300 million a day to Eskom’s stage 4 load shedding as analysts cast doubt on the power utility’s ability to continue as a going concern with lacklustre financial planning, lack of spare parts for the machinery perennially breaking down, poor cash liquidity and a leadership vacuum.
Last night, the Minister of Mineral resources and Energy Gwede Mantashe announced the preferred bidders for the Renewable Energy Independent Power Producers Procurement Programme Bid Window 5 to fast track security of energy supply.
Moody’s Ratings Agency and S&P Global are scheduled to issue a review on November 19, but may bring it forward if Godongwana’s budget on November 11 fails to hit the right notes. Fitch Ratings, however, has not given dates. The power utility has become an Achilles heel that could push the country’s sovereign credit ratings status deeper into sub-investment level analysts warn.
Ratings agencies have repeatedly warned that Eskom remained a particular source of further contingent liability risk for the government which borrows at a rate of R2.1 billion a day.
If South Africa’s economy were to be downgraded further into junk status next month, the cost of government borrowing would be raised even further, causing a snowball effect on the whole economy.
They said a solution to Eskom's financial viability, which addresses its high debt level of R480bn, 65 percent of which
is government-guaranteed, remained incomplete, but could itself also lead to a further deterioration in government finances. Earlier this week, Eskom chief executive Andre de Ruyter said it would take about R440bn and R500bn to enable Eskom’s just energy transition.
Whether the financial markets would have the appetite to borrow such a substantial amount of money to a “technically insolvent” utility is a matter for another day.
Analysts have also cautioned that Eskom can no longer fulfil its function as sole provider of power, and accordingly urged to further accelerate the opening of the market to other players.
Anchor Capital’s co-chief investment officer, Nolan Wapenaar, yesterday said
the inability to provide power was a key and significant growth constraint in the economy.
Wapenaar said if South Africa achieved the economic growth rates required to reduce unemployment, then Eskom just could not cope. “Investors and taxpayers are looking at South Africa with a degree of scepticism,” he said. “Eskom heightens the scepticism and we have already seen borrowing costs edge higher while the rand has edged weaker.
“In turn, this will cost every South African more as imported inflation increases the price of transport and food, while it costs the government an ever-increasing amount to sustain itself with debt at the expense of spending on
development and social support.”
Energy expert and chief executive at Energy Thought Leader, Mike Rossouw yesterday dismissed the fallacy that Eskom was too big to fail as the utility had failed to restore its fleet, had a high rate of plant breakdown, no spares for machinery and had liquidity issues.
Energy analyst Ted Blom said without a sufficient budget and a high turnover of novice leadership at the helm of the utility, its failure was inevitable.
“You can’t run the most complex organisation in the whole of South Africa, if not the whole continent with novice leadership. Over the last 20 years there have been numerous changes, perhaps more than 10 chief executives at Eskom,” he said.
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