South Africa\u2019s plan to provide its struggling power utility debt relief and potentially write off municipalities\u2019 arrears to Eskom will ultimately improve liquidity and cut funding risks for the government, according to Moody\u2019s Investors Service.<\/p>\n\n\n\n
The proposed R254 billion of relief announced in February\u2019s budget is aimed at strengthening Eskom\u2019s balance sheet and covering all interest payments over the next three years provided it brings in private partners to help operate its plants and the electricity transmission network.<\/p>\n\n\n\n
That would free up money for the utility to undertake plant maintenance and improve the transmission and distribution infrastructure as the country battles almost daily electricity rationing.<\/p>\n\n\n\n
\u201cIf Eskom is able to deliver on the plan, which includes operational efficiency improvement, this would benefit the wider economy, including the sovereign, municipalities, banks and companies,\u201d the ratings company\u2019s analysts, including Benedicte Andries and Aurelien Mali, said in a note on Wednesday.<\/p>\n\n\n\n
The proposal is also credit-positive for Eskom because it will strengthen its balance sheet and reduce pressure on cash flow, Moody\u2019s said. \u201cIt will also substantially reduce the nonpayment risk on Eskom\u2019s debt over the next three years,\u201d it said.<\/p>\n\n\n\n
Eskom has been surviving on state bailouts for years because it can\u2019t bring in enough income to cover its operating costs and service its loans. Acute breakdowns of its poorly maintained coal-fired plants have set back efforts to restore it to profitability and resulted in chronic electricity shortages.<\/p>\n\n\n\n
Positive for Banks<\/strong><\/p>\n\n\n\n Load shedding began in 2008 and has hobbled South Africa\u2019s economy, weakening the rand and adding to inflation. The central bank estimates they shaved 2 percentage points off the nation\u2019s economic growth rate this year.<\/p>\n\n\n\n \u201cLoad shedding has caused significant disruption, reduced business confidence and increased labour market uncertainty,\u201d adding to South Africa\u2019s existing problems of structurally weak growth, weak municipal and state-owned company governance and a lack of infrastructure network investment, Moody\u2019s said.<\/p>\n\n\n\n The Eskom and municipal debt relief plan are also likely to have a positive impact on the government-owned Development Bank of Southern Africa, whose exposure to the utility and local governments accounts for more than 50% of its total assets, the rating company said.<\/p>\n\n\n\n It would also be positive for larger South African banks, though to a lesser extent, as their exposures to the broader public sector sit at around 2% of gross loans and around 14% of shareholders\u2019 equity, Moody\u2019s added. <\/p>\n\n\n\n
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