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SA on the right path to solving power crisis, say Moody’s and PwC

In its report yesterday, Moody’s said that if implemented effectively, the government’s plans would likely improve liquidity and reduce funding risk in South Africa. File

In its report yesterday, Moody’s said that if implemented effectively, the government’s plans would likely improve liquidity and reduce funding risk in South Africa. File

Published Jun 29, 2023

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South Africa’s electricity crisis could improve markedly from next year if the government effectively implements the proposed Eskom debt relief plan and workers are upskilled with green skills.

These were the conclusions of two separate reports released yesterday about South Africa’s three-pronged approach to tackle the energy crisis and the changing labour market in a transitioning economy.

Moody’s Investor Service commented about the government’s proposal to take over R254 billion of Eskom’s unsustainable debt over three years from the National Treasury.

The government also wants Eskom to write off the municipal debt — the principal debt, interest and penalties — over three years, subject to the municipalities complying with a number of conditions in a bid to prevent debt building up again.

This draft legislation was green-lit by Parliament’s Select Committee on Appropriations and debated by the National Council of Provinces for a vote before it can be sent to President Cyril Ramaphosa for approval.

This occurs while the electricity sector reform aims to speed up private investment in independent generation capacity.

In its report yesterday, Moody’s said that if implemented effectively, these plans would likely improve liquidity and reduce funding risk in South Africa, given the strong links between public-sector issuers.

Moody’s assistant vice-president and analyst, Benedicte Andries, said the proposed debt relief for Eskom, and the potential write-off of municipalities' arrears to Eskom, would also have a positive impact on government-owned development finance company, Development Bank of Southern Africa (DBSA).

DBSA’s loan book exposure to Eskom and the local governments account for more than 50% of its total assets, while the bank’s loan book exposure to the local government totalled R32bn and its exposure to public utilities was R30bn.

“If the plan successfully improves municipalities' revenue management, this would be positive for their credit quality, reduce Eskom's non-payment risk and enhance banks' asset quality.

“Increased private investment in renewables would help protect companies from the impact of load shedding, reduce their operating costs as well as their greenhouse gas (GHG) emission.

‘’Load shedding has caused significant disruption, reduced business confidence and increased labour market uncertainty. These factors add to South Africa's existing problems, including structurally weak growth, weak municipal and state-owned enterprise (SOE) governance and a lack of infrastructure network investment.”

South Africa’s economy is forecast to grow by a meagre 0.3% this year, but could rebound to 1.0% in 2024 if there is a turning point in the extent of load shedding this year.

Eskom has been performing better over the past few weeks, only implementing Stage 3 load shedding during evening peak hours after warning of an unprecedented Stage 8 during winter months.

The private investment currently seen and planned in alternative electricity supply is significant, with Operation Vulindlela tracking a pipeline of 10 000MW in private sector energy generation projects, up from 4 000MW reported a year ago.

In its June Economic Outlook, PwC South Africa yesterday said the positive impact this would have on power supply in the country and on individual business operations made for a more positive economic growth outlook for 2024.

PwC South Africa senior economist Christie Viljoen said this energy investment would bring with it more green jobs as the world transitions to net zero.

However, Viljoen said the transition to a green economy required organisations to take a proactive and intentional approach towards developing a green workforce.

“Upskilling is about more than just providing access to training. It is about identifying the knowledge, skills and experience that will be most valuable in the future for new and transformed roles,” Viljoen said.

“It is also about developing an effective way to support and inspire people to take action today and continue to adapt in the future. This means understanding evolving skills gaps and mismatches, creating the right employee experience and buy-in to unleash energy for change, and developing engaging skills-development programmes.”

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