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Wednesday, 07 August 2019 10:54

Moody's rating agency says Eskom urgently needs a turnaround plan

Moody's rating agency says government transfers to Eskom of R105bn over the next two years cannot do more than stabilise the company’s debt burden.  

The rating agency 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.

Moody's, however, acknowledged that the power utility's new management is focusing on improving corporate governance at the entity.