Eskom plans new power station as ratings agencies warn over bailouts

Debt-laden power utility Eskom is planning to construct a 3,000MW gas power station near Richard Bay in KwaZulu-Natal and is conducting a feasibility study for the project.

The Rapport newspaper reported that environmental approval for the power station is expected in January 2020. Eskom confirmed the project and the feasibility study.

The power utility added that the construction cost for the new power station will only be revealed after the feasibility study has been completed.

Eskom is struggling under more than R440 billion of debt and expects to report another annual loss this month because of cost overruns on new plants and unreliable generation from ageing coal facilities that resulted in power outages in the first quarter, Bloomberg reported.

The government has vowed to help the company that provides about 95% of the nation’s power as the dire state of its finances have became clearer.

Ratings agency Moody’s warned last week however, of the impact of a planned R59 billion bailout for Eskom.

“We currently expect Eskom’s debt to broadly stabilise as a result of the government capital transfers in financial years 2020-21,” Moody’s analysts said in a statement.

“However, the company’s future debt trajectory will depend on its ability to contain operating costs, which are likely to remain under upwards pressure, and capital spending.”

The electricity company, which is seen as the biggest threat to the nation’s economy, will get R26 billion of the money this financial year and R33 billion in 2020-21.

That’s only five months after finance minister Tito Mboweni announced a three-year R69 billion cash injection for the utility.

Fitch Ratings meanwhile, cut the outlook on its assessment of South Africa’s debt to negative, putting the the country at risk of falling further into sub-investment territory.

Fitch reduced the outlook from stable while affirming the junk BB+ rating on nation’s foreign- and local-currency debt, it said in an emailed statement Friday.

A negative outlook usually indicates that the next move could be a downgrade.

Bloomberg reported that Fitch’s outlook change is due to a “marked widening in the budget deficit as a result of lower GDP growth and increased spending, including state-owned enterprise support.”

The extra money for Eskom will widen the budget deficit for this fiscal year to 6.3% of gross domestic product, compared with the 4.5% of GDP the government projected in February, Fitch said.

Government debt is projected to increase to 68% of GDP by 2021-22 and could continue to rise after that, according to the company.

Read: Fitch cuts South African outlook to negative on Eskom bailout

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Eskom plans new power station as ratings agencies warn over bailouts