South Africa’s plan to provide struggling power utility Eskom with debt relief and potentially write off municipalities’ arrears will improve liquidity and cut funding risks for the government, according to ratings agency Moody’s Investors Service.
The proposed R254bn relief announced in February’s budget is aimed at strengthening Eskom’s 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.
That would free up money for the utility to undertake plant maintenance and improve transmission and distribution infrastructure as the country battles almost daily load-shedding.
“If 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,” the ratings company’s analysts said this week.
The proposal is also credit-positive for Eskom because it will strengthen its balance sheet and reduce pressure on cash flow, said Moody’s.
“It will also substantially reduce the nonpayment risk on Eskom’s debt over the next three years,” it said.
Eskom has been surviving on state bailouts for years because it can’t 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.
“Load-shedding has caused significant disruption, reduced business confidence and increased labour-market uncertainty,” adding to South Africa’s existing problems of structurally weak growth, weak municipal and state-owned company governance and a lack of infrastructure network investment, said Moody’s.
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