Fixing loss-making power utility Eskom is complex and it will take time for the government and the company to agree to a plan, according to Moody’s Investors Service.
The energy firm, which supplies about 95% of the country’s power, has 450 billion rand ($30.5 billion) of debt and is surviving on state bailouts after massive cost overruns at two partially completed coal-fired power plants. While the government has proposed splitting it into three units and a policy paper by the National Treasury proposes selling coal-fired plants, no strategy to stabilize its finances has been published yet.
“For us, there will be only one plan and that will be the one that both the government and the company agreed to,” Lucie Villa, Moody’s vice president and lead sovereign analyst for South Africa, said in an interview in Johannesburg on Monday. “Knowing the complexity of the issue, we know first that it will be an iterative process and that it takes time. So our view has been that is takes more than a few months to sort out certain issues.”
The government’s proposed 128 billion rand in assistance over three years will add to state liabilities and widen the fiscal deficit, she said, without giving an estimate.
Moody’s is the only major ratings company that still assesses South Africa’s debt at investment grade. While it has a stable outlook on the Baa3 rating, one level above junk, analysts are speculating that it’s at risk of a downgrade given weak economic growth and rising debt.