S&P’s ‘CreditWatch’ move underlines seriousness of Eskom’s plight

24th June 2014

By: Terence Creamer

Creamer Media Editor

  

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Electricity utility Eskom confirmed on Tuesday that credit rating agency Standard & Poor’s (S&P’s) had downgraded its long-term local and foreign currency rating to BBB- from BBB and had also placed it on “CreditWatch with potential negative implications”.

The downgrade was anticipated following the downgrade of South Africa’s local and foreign currency to BBB- on June 13, 2014. It also came after Fitch Ratings revised its ratings outlook for Eskom from stable to negative on June 20.

But FD Tsholofelo Molefe said it was concerned about being placed on CreditWatch by S&P’s, a move that arose owing to specific concerns about Eskom’s capital structure.

She said the State-owned group was engaging government, its sole shareholder, to address problems with Eskom’s capital structure.

“Eskom notes the ratings action by S&P's and we are certainly concerned about the CreditWatch which has negative implications. We are confident that a solution will be forthcoming,” Molefe said in a statement.

Earlier both Public Enterprises Minister Lynne Brown and Energy Minister Tina Joemat-Pettersson confirmed that urgent discussions involving both departments, the National Treasury and Eskom were under way to seek a resolution to the utility’s financial problems.

The utility faced a R225-billion revenue shortfall between 2013 and 2018 as a result of having been granted yearly tariff increases of 8% for the five-year period, instead of the 16% it had requested from the National Energy Regulator of South Africa (Nersa).

It has been working with a government task team to find ways to deal with the shortfall, including through a possible further equity, or quasi-equity, injection of R50-billion.

Eskom has made a regulatory clearing account submission to Nersa arising from the second multiyear price determination period, which was in operation between 2010 and 2013. Should it receive a favourable determination, it could receive an upward tariff adjustment on the 8% already sanctioned for introduction on April 1, 2015.

Interim CEO Collin Matjila reported earlier in the month that an ‘emergency task team’, comprising board members and executives, has been assembled to work on the strategy, which would have to be refined by the economic cluster ahead of implementation. The intention is to gain Cabinet approval for the strategy ahead of Eskom’s July annual general meeting.

Edited by Creamer Media Reporter

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