Photographer: Waldo Swiegers/Bloomberg

Eskom Reviews `Major Impact' of Curbs on Higher Power Prices

Updated on
  • Utility studying effects on financial sustainability
  • Liquidity levels ‘sufficient’ for South African power producer

Eskom Holdings SOC Ltd., the South African power utility battling to maintain liquidity, said there will be a “major impact” from the regulator’s decision last month to grant only a quarter of its requested tariff increase.

The National Energy Regulator of South Africa gave the cash-strapped utility permission to raise prices by 5.2 percent from April 1, far short of the almost 20 percent Eskom had applied for.

“Eskom is still in the process of reviewing and modeling this lower tariff determination and potential impact on the business and financial sustainability,” the state-owned company said in an emailed response to questions.

After a decade of electricity prices increasing by an average of double the rate of inflation, the regulator said in December that it would only allow costs that Eskom had “prudently” incurred. The producer is the biggest recipient of state guarantees at a time when domestic power demand is the lowest in more than 10 years and as South Africa’s finances buckle under lower tax revenue and rising debt.

Prudent Oversight

Regulator has reduced power price hikes by Africa's biggest producer

Source: National Energy Regulator of South Africa

Public Enterprises Minister Lynne Brown has written to the regulator, asking it to speed up processing of requests by the utility to recoup unforeseen expenses through higher power prices, the National Treasury said in an emailed response to questions.

Borrowing Options

The utility said its borrowing options include issuing international bonds and drawing down existing loans from export credit agencies and development finance institutions. It will not “at this stage” seek a cash injection from the government, Eskom said. It’s targeting the end of the month to release delayed interim results for the period to September.

The company needs 20 billion rand ($1.6 billion) of funding by the end of its fiscal year on March 31, the Mail & Guardian newspaper reported, citing Eskom. Accessing funding in local and international markets has been difficult because of concerns over the utility’s governance, it said.

Goldman Sachs Group Inc. in September said the utility was the biggest single risk to the South African economy and that the government needed to replace its management.

Moody’s Investors Service cut Eskom’s credit rating to a deeper junk level in November, citing poor governance, weakening liquidity and the decreasing likelihood of government support. Liquidity levels “remain sufficient,” the utility said this week.

— With assistance by Arabile Gumede

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