By Lehlohonolo Lehana.
Eskom group has welcomed the decision by credit ratings agency Fitch to keep the power utility’s rating at ‘B’ with a stable outlook.
Fitch rating agency has affirmed Eskom’s long-term local-currency issuer default rating at B, with a stable outlook.
The group said the rating is a testament to its efforts to stabilise the entity’s financial status.
“The latest decision by the rating agency is an encouragement in the cooperative and ongoing efforts to restore Eskom’s financial stability, improve performance and ensure its long-term sustainability,”Eskom said.
The power utility explained that government’s decision to provide Eskom with debt relief over the next three years proved pivotal.
The decision was made to allow the power utility to stabilise its balance sheet, undertake urgently needed maintenance on power stations, restructure and invest.
“Central to the rating agency’s decision is Eskom’s link to the South African government as a state-owned enterprise. The decision also comes on the back of the debt relief package for Eskom as announced by the Minister of Finance in February this year.
“As stated in the Eskom Debt Relief Bill, government will, over the next three years, provide Eskom with debt relief of R254 billion.
“This will be in the form of advances of R78 billion in 2023/24 financial year, R66 billion in 2024/25 financial year and R40 billion in 2025/26 financial year as well as a takeover of up to R70 billion of Eskom’s loan portfolio in 2025/26 financial year,” Eskom said.
However the rating agency indicated that the independent power producers are eating into Eskom’s electricity sales, which are projected to fall 2% per year between now and 2027.
Pressure on sales volumes is one of the factors that could lead to a deterioration in Eskom’s liquidity and funding access and a downgrade in the utility’s credit rating, Fitch said.
Eskom, which provides 90% of South Africa’s electricity, is struggling to meet demand with its fleet of coal-fired power stations that often break down.
The utility has implemented rotational blackouts on all but one day this year. The constant outages have prompted companies to commission the building of power plants for their own needs, mainly solar and wind facilities.
Data released by the statistics office on Thursday show Eskom is already losing ground. The utility produced 11.4% less power in the first four months of 2023 compared with the same period last year, and consumption of its electricity fell 10.7%.
Over the same period, generation and consumption from other producers rose from a year earlier.
The government expects private companies to add more than 4 gigawatts of electricity generation capacity to the grid by the end of 2024 and another 3 gigawatts by 2030.
Decrees in 2021 and last year that removed caps on the size of power plants that companies can build for their own use have resulted in 108 projects with a combined capacity of more than 10 gigawatts being registered for construction, according to a report released on 30 May.
Tariff increases for Eskom approved by the country’s energy regulator were below what the utility had requested for this fiscal year and the next and are forecast to be less than 10% from 2025-26, Fitch said.
That would be insufficient to fund adequate capital expenditure for asset maintenance and provide a fair return for Eskom, added the rating company.