Picture: REUTERS
Picture: REUTERS

Eskom’s application for new tariff increases will be credit-positive if approved, credit ratings agency Moody’s Investors Service said in a note e-mailed on Tuesday.

At the end of October, the power utility asked the National Energy Regulator of SA (Nersa) for a 15% tariff increase for the next three years, starting in 2019.

“A 15% rise in each of the three years would allow Eskom to address rising operating costs and its still sizeable capital expenditure programme, which includes the completion of coal-fired generation projects as well as new investment projects,” Moody’s senior credit officer Helen Francis said.

“The additional cash flow would also allow it to meet its debt-servicing costs more easily.” 

Eskom is rated at junk status by Moody’s at B2 negative. The embattled state-owned entity (SOE) is in deep financial trouble with falling sales, a declining ability to meet debt obligations and tariffs that are not cost-reflective. With debt of more than R350bn and rising, it faces an interest bill of R215bn over the next five years.

Between 2008 and 2013, the regulator approved several large increases in annual tariffs for new-generation capacity, which was met with resistance from consumers. While approved tariff increases between 2009 and 2017 were above the prevailing rate of inflation, they were much lower than Eskom requested.

The SOE expects its costs to rise above inflation. In its application to Nersa, Eskom estimated that operating and primary energy costs will rise at an above-inflation, compound annual growth rate of 6.7%.

“The regulator has also called for greater efficiencies as Eskom’s costs have spiraled amid stagnating output from its mostly coal-fired generation fleet. Affordability issues remain a significant concern as electricity prices have risen,” the report said.

Electricity prices rose 350% in the 10 years prior to 2017, compared to inflation, which was 74% over the period. High electricity prices are viewed as a drag on economic growth and have been a key driver of inflation.

“Lower tariffs would maintain pressure on Eskom’s financial profile and be likely to prompt further action to cut costs,” reads the report. “We expect Eskom to seek to reduce its operating costs and capex, or seek alternative solutions, if the approved tariffs are lower than requested.”

This comes as Eskom implemented emergency stage one load-shedding on Sunday for first time in more than two years as it struggles to bring a coal supply shortage under control. It confirmed that some of its power stations have less than 10 days of coal stocks.

The utility announced last week that it would be expanding its load shedding plan to eight stages, allowing for up to 8 000 MW to be shed, from its previous four stages, which allowed 4 000 MW. 

Stage four load shedding means consumers are without power for a total of 24 hours spread out over four days, or a total of 48 hours over eight days. However, during stage eight load shedding, consumers would be without power for 48 hours over four days, or 96 hours in eight days.

With Carol Paton

menons@businesslive.co.za