Billions for Eskom will not solve its crisis, warns Moody’s
Government transfers to Eskom of R105bn over the next two years cannot do more than stabilise the company’s debt burden, Moody’s Investors Service said in a note on Tuesday.
Commenting on Eskom’s 2019 financial results, presented a week ago, Moody’s underlined the urgency of a turnaround plan for Eskom and said that until this was in place the government will have to keep on providing bailouts.
The government had promised R69bn of support over the next three years, but expanded this by another R59bn in July, and R105bn of this will flow over the 2020/2021 period.
“We view the additional cash transfers as credit positive, but the increased support has become necessary for Eskom to remain a going concern. As such we consider that the government capital transfers cannot do more than stabilise the company’s debt burden, pending the development of a longer-term solution for the company,” it said.
Eskom has a debt burden of R440bn. However, the quantum will continue to rise as Eskom must continue to expand borrowing if it is to complete the construction of its two new mega power stations, Medupi and Kusile.
Together with a rising quantum of debt, debt service costs are also rising and will reach R84bn for this year, more than wiping out the government’s capital transfer of R49bn for 2019/2020.
Financing costs will again exceed Eskom’s operating cash flows in 2020, says Moody’s.
“The current capital structure is not sustainable, absent continued government cash transfers, indicating a strong and urgent need for a longer-term strategic turnaround plan.”
In a positive signal to investors, Moody’s said that it recognised the importance of Eskom to the economy and the strong commitment of the government to the company. This was evidenced, it said, both by the government’s financial support and “its focus on finding a sustainable and viable long-term solution”.
The report noted the appointment of Freeman Nomvalo – a former Treasury official and CEO of SA Institute of Chartered Accountants – as Eskom’s chief restructuring officer “whose task will be to oversee a strategic turnaround plan, including the company’s unbundling into three entities: generation, transmission and distribution”.
It also notes the commitment by public enterprises minister Pravin Gordhan to publish a white paper outlining the government’s approach to the unbundling by mid-September, although, says the report “delays cannot be ruled out”.