Government ‘approves package’ to help Eskom stop downgrade

2014-09-15 09:38

Eskom is set to get an equity injection from the state in a bid to prevent ratings agency Standard & Poor’s from downgrading its credit rating.

The good news for the embattled power utility came as it began its 100-day countdown until the Medupi power station is powered up.

“Cabinet approved a package to support a strong and sustainable Eskom to ensure that the energy security of the country is maintained, as well as supporting gross domestic product growth,” the national treasury said yesterday.

Eskom has a R225 billion shortfall in funding over five years through March 2018. S&P rates its debt as BBB-, the lowest investment grade. On June 20, the ratings company placed Eskom on negative CreditWatch, meaning it had a 50% chance of being cut again to junk within 90 days.

Eskom will sell an additional R50 billion in bonds and the government will use “non-strategic” assets for an equity injection, the treasury said.

S&P said it was awaiting the government’s decision before deciding whether to cut Eskom’s credit rating to junk.

The equity injection means “an allocation of funding will be given to Eskom to help relieve the impact on electricity consumers, as well as add additional support to Eskom’s balance sheet,” the treasury said.

“Raising more debt is supported by the substantial guarantee facility available to Eskom from government, which will be used to reduce Eskom’s cost of debt.”

Energy policies and regulations will be refined, electricity demand will be balanced, free electricity will be provided for the poorest households, independent power producers will be supported by government and Eskom’s operations will be made more efficient, the treasury said.

Meanwhile, unit six of the new power station, which has faced numerous delays in its construction, is expected to be synchronised at midday on December 24.

The Medupi coal power station, the first power station to be built by Eskom in 20 years, is being built near Lephalale in Limpopo.

Synchronisation, or first power, involves the generator being electrically connected to the power grid, so that its power is aligned with all the other generators and to generate and deliver electricity into the grid.

It would take several months for the unit to reach full and stable power.

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