Providing Eskom, which has R419 billion ($30 billion) of debt, financial support before taking measures to generate savings at the utility would be credit-negative for the country, Moody\u2019s said. The remedies would entail \u201cunpopular decisions\u201d on electricity tariffs, it said.<\/p>\n
Power cuts may cost the country as much as 5 billion rand a day, according to the Organisation Undoing Tax Abuse, a civil-society group.<\/p>\n
Regular supply interruptions are creating uncertainty that endangers businesses that are highly dependent on the utility, said Shaun Nel, a spokesman for the Energy Intensive Users Group of South Africa, whose members consume more than 40% of the nation\u2019s power and include Anglo American Plc.<\/p>\n
\u201cWe\u2019re going to see companies close in the smelting industry,\u201d Nel said. Between already-high tariffs and the spectre of more supply cuts, the victims will be \u201csmall foundries and smelters that shut down and never come back,\u201d he said.<\/p>\n
The country is Africa\u2019s biggest steel producer, and Eskom first throttles supply to industrial customers before cutting retail consumers.<\/p>\n
Tariff Request<\/strong><\/p>\n Eskom has asked for permission to raise power tariffs by 15% in each of the next three fiscal years, more than triple the average inflation rate over the past 12 months. If allowed, this would ease the government\u2019s contingent-liability risk but stoke inflation and weigh on economic growth, said Moody\u2019s. Small price increases would \u201cmaintain pressure on the company\u2019s very weak financial profile,\u201d it said.<\/p>\n A breakup into generation, distribution and transmission businesses will enable each unit to better manage costs and make it easier to raise funding, the government said. Credit-rating companies see Eskom as a key risk to Africa\u2019s most-industrialised economy, with blackouts and huge debt a drag on growth prospects.<\/p>\n Moody\u2019s is the only one of the three major ratings companies that has South African debt at investment grade. It raised the outlook on the assessment to stable from negative in March and will publish its next assessment on March 29, a month after the release of the 2019 budget.<\/p>\n The rand erased earlier gains, weakening 0.9% to R13.7455 per dollar by 4:15 p.m. in Johannesburg. Yields on rand-denominated government bonds due December 2026 climbed 12 basis points, the most since Oct. 24, to 8.77%.<\/p>\n Moody\u2019s comments are a reminder that major structural issues such as power insufficiency are serious constraints on the real economy and put pressure on public finances, said Piotr Matys, London-based emerging markets currency strategist at Rabobank.<\/p>\n \u201cThose issues pose a major challenge for President Ramaphosa\u2019s administration,\u201d he said.<\/p>\n
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