Outages to wage deal may spur Eskom to borrow extra R45bn

South Africa’s indebted power utility may need to borrow an extra R45 billion ($2.6 billion) to purchase diesel and pay inflation-beating salaries to workers, according to S&P Global Ratings.

That’s a 50% increase from S&P’s borrowing forecast for Eskom in November, according to Omega Collocott, director of corporate ratings for South Africa at the company. The utility had a funding plan of R24.4 billion for the year to March, according to a company presentation in November.

Africa’s most-industrialised nation had to endure hours of outages in the past few weeks as labour strife and breakdowns at coal-fired plants forced Eskom to resort to rolling blackouts. The elevated use of diesel-fed turbines, the wage deal and a tariff increase that didn’t meet the company’s requirement left the utility with a bigger hole in its finances.

“All in, net cash flows” at the lower end are 15 billion rand below S&P’s forecasts, Collocott said in an interview. “This obviously assumes no change to the planned quantum of government transfers to Eskom,” she said, referring to the R22 billion the government pledged for the company in the current fiscal year.

The funding concerns have pushed the spread between Eskom’s guaranteed and unguaranteed tranche of 2028 dollar securities to near pandemic-level highs. The utility has about R396 billion of debt.

The tariff increase of 9.6% was lower than what Eskom required. That means S&P’s revenue assumptions for the year ending March 31 could be lower by about 10 billion rand compared with the rating company’s November forecast.

S&P rates Eskom’s debt at CCC+, seven levels below investment grade, with a negative outlook.

Fitch Ratings last week said the poor finances of many public enterprises meant they posed considerable risks to public finances.

The rating company said its expects Eskom to require additional financial support of around R150 billion, “which is not factored into our debt forecast due to the uncertain timing and form of support,” Fitch said, without giving a time frame.