Cape Town, South Africa — ESI-AFRICA.COM — 21 November 2011 – Moody’s downgrading of its South African sovereign debt outlook has caused a chain reaction rippling through to South African national power utility Eskom Holdings and Transnet, the key element of the country’s freight logistics chain.
Revealing this here, Sake24 said the ratings of five municipalities and the South African National Roads Agency had also been reduced from stable to negative.
Referring to Eskom, the credit rating agency warns that electricity tariff increases considerably higher than the inflation rate will probably be required for a number of years yet to reflect the full cost of power generation.
Moody’s reduced the outlook for Eskom’s debenture credit rating from stable to negative because the utility, if necessary, could depend heavily on government finance in light of its strategic role as the dominant electricity provider.
According to Moody’s the South African government has almost doubled the maximum loan amount that it will guarantee for Eskom from R176 billion to R350 billion. Moody’s acknowledges that the series of 25% increases in electricity prices between 2010 and 2013 have improved Eskom’s financial position, but this could again weaken by next year as capital expenditure rises. The parastatal is planning, among other things, to spend R453 billion on the construction of new power stations from next year to 2017.
Eskom’s only response has been to confirm the downgrade and to say that the positive aspect is that its finances continued to improve and that it was proceeding with its capital expenditure programme.
According to Moody’s, Eskom’s finances could be affected by the coming series of tariff increases for the years after 2013, and then by the extent and tempo of any further capital expenditure in the long run.
Moody’s also lowered the outlook for Transnet’s A3/Prime 2 senior unsecured long and short-term debentures from stable to negative – also as a consequence of its downgrading of the government debt prospects, and because of the risks of Transnet’s huge capital programme over the next five years, and possible pressure to accelerate capital expenditure.