Investment bank Goldman Sachs said South Africa\u2019s rand could tumble 3.5% if state-run power utility Eskom suffers a major sell-off in its bonds – but it could also jump 4.5% if the firm\u2019s troubles improve.<\/p>\n
Reuters<\/a> <\/strong>reports that Goldman’s ‘Eskom risk gauge’ is now close to its most elevated reading since it was started in 2013 – suggesting that markets were currently pricing ‘close to peak Eskom risk’.<\/p>\n “In a negative (scenario) where Eskom risk rises further, the rand could weaken by 3.5% and (South African government debt) yields could widen by 45 basis points,\u201d Goldman\u2019s analysts said.<\/p>\n They added that even more outsized reactions were also possible in the event of a major sell-off.<\/p>\n In contrast, in a positive scenario where Eskom stress dropped back to 2014 levels, modelling pointed to a 4.5% stronger rand and a 55 basis point improvement in 10-year government yields, the analysts said.<\/p>\n “With more acute financial and operational issues at the company and the task force report due at the end of the month, we think that policy decisions relating to Eskom could be more forthcoming now than they have been at times in the past.<\/p>\n “Nonetheless, given the current political constraints related to upcoming general elections (likely to take place in May 2019), any deeper-cutting and more comprehensive policies may only be possible post-election,” Goldman said.<\/p>\n Tariff hikes<\/strong><\/p>\n Goldman’s forecast comes as Eskom pleaded with the public and the regulator for another tariff hike which could see\u00a0South Africa\u2019s electricity tariffs by 15% per annum over the next three years (a total 52% hike over the period).<\/p>\n On Monday (14 January), the National Energy Regulator (Nersa) started public hearings on Eskom\u2019s fourth multi-year price determination (MYPD4) of electricity tariffs, for the three years from April 2019 to March 2022.<\/p>\n However,\u00a0CEO Phakamani Hadebe has acknowledged that higher tariffs will not solve the power utilities’ debt problems entirely.<\/p>\n