Rand Set to Plunge as Risk of Power Cuts Rises, Nomura Says

South Africa’s rand is set to extend declines as the risk of forced blackouts by Eskom Holdings SOC Ltd., the state-owned electricity company, rises, according to Nomura Holdings Inc.

The currency may drop to 9.95 per dollar, with past experience as a guide, Peter Attard Montalto, a London-based emerging-markets economist at Nomura, wrote in a research note e-mailed to clients today. A “more conservative” target for the currency is 9.52 per dollar, he said. It traded 0.1 percent stronger at 9.1758 per dollar by 1:28 p.m. in Johannesburg.

The rand fell 15 percent against the dollar in the first quarter of 2008, when coal shortages and maintenance at power plants forced Eskom to cut electricity to the nation’s mines, a program known as load shedding. The risk of a repeat this quarter and next year is “very high” after strikes at mines owned by Exxaro Resources Ltd., the nation’s second-biggest coal producer, cut supplies to plants, Montalto said.

“The electricity supply situation is extremely tight,” he said. “The risk of load-shedding is the highest since start 2008. The system can easily be tripped over into load-shedding.”

A fault at Koeberg, South Africa’s only nuclear power plant, damaged transmission lines from the Cahora Bassa hydropower site in Mozambique, and maintenance at other plants have cut generating capacity by 22 percent, Eskom said on March 11. The company supplies 95 percent of the nation’s power.

Deficit Risks

The rand also faces risks from labor disputes, a current-account deficit near a four-year high, concern about a widening budget shortfall and a potential downgrade of South Africa’s credit rating, Montalto wrote.

The current-account gap reached 6.5 percent of gross domestic product, down from a revised 6.8 percent in the third quarter, the biggest since the same period in 2008, the Reserve Bank said on March 12. The deficit, the broadest measure of trade in goods and services, almost doubled to 6.3 percent in 2012 from 3.4 percent a year earlier as mining strikes and slower growth in Europe cut exports.

The South African currency has weakened 7.7 percent this year, the most out of 25 emerging-market currencies monitored by Bloomberg.