Nov. 10 (Bloomberg) -- Eskom Holdings Ltd., South Africa's power utility seeking to fund a 17-year infrastructure program, agreed to a $500 million loan from the African Development Bank, the largest ever provided by the finance institution.

``The loan comes at a time when Eskom needs to meet its most significant challenge yet,'' Finance Director Bongani Nqwababa said in Johannesburg today after signing the 20-year accord. ``The next five years remain critical. We're likely to be in this expansion phase for the next two decades.''

Eskom, which is spending 343 billion rand ($35 billion) over the next five years to boost electricity supply, last month postponed plans to sell $500 million of bonds after the global credit crisis pushed up borrowing costs. Eskom needs funding for a 1.3 trillion-rand program to double the country's generation capacity to 80,000 megawatts.

The state-owned utility has now raised 19 billion of the 30 billion rand targeted for this fiscal year and is ``confident'' it will raise the balance by the end of March, Nqwababa said in an interview.

The drop in commodity prices -- the UBS CMCI Bloomberg Index has slumped 45 percent since peaking in July -- may help lower the cost of new equipment and cut raw material expenses, he said. Eskom uses coal-fired power stations for most of its generation.

``In a way the credit crisis may help us,'' Nqwababa said. ``When the dust settles, investors are likely to seek us out because of our strong cash flows.''

Underinvestment

South Africa's National Treasury has agreed to guarantee some of Eskom's debt and will give it 30 years to repay a 60 billion- rand loan as part of a range of measures to bolster the utility's deteriorating ability to raise debt. Eskom is expanding after two decades of underinvestment to catch up with demand that now exceeds its capacity.

By supporting Eskom, the African Development Bank will also help spur further development in sub-Saharan Africa, said Mandla Gantsho, the vice president of infrastructure, private sector and regional integration.

The Tunis-based lender also agreed to provide Standard Bank Group Ltd., Africa's largest bank by assets, with a $220 million long-term foreign currency facility to finance infrastructure projects on the continent, according to a statement distributed by Johannesburg-based Standard Bank at the Eskom briefing.

To contact the reporter on this story: Nicky Smith in Johannesburg nsmith38@bloomberg.net.

Last Updated: November 10, 2008 08:20 EST