Transnet streets ahead of Eskom

Call it a tale of two state-run companies.

Transnet is financing most of its seven-year R312-billion investment programme from its own balance sheet, while Eskom faces a R225-billion funding deficit as it builds new plants to relieve chronic electricity cuts.

The contrasting fortunes of the enterprises can be seen, too, in their bonds. The difference in yield between Eskom's January 2021 note and Transnet's July 2022 security increased to a record this week.

While Eskom awaits details of a government rescue package, Transnet is transporting more goods to bigger ports.

The key difference between the two, according to Elena Ilkova, an analyst at Rand Merchant Bank, is that Transnet has control over some of its pricing.

"What Transnet is able to do is set tariffs that reflect accurately its cost structure. That's exactly what Eskom is not able to do."

As provider of 95% of power in the country, the government sets electricity tariffs through the national energy regulator. The funding shortfall at Eskom increased after the regulator in 2013 granted the utility only half the average percentage increase in annual tariffs sought for the five years to 2018.

Eskom plans to sell at least three international bonds this year to help cover the funding gap as the government prepares to announce how it will provide at least R20-billion in emergency funds.

Only a substantial increase in tariffs would improve Eskom's financial profile, Moody's says. Weak operational performance, insufficient tariffs and a large capex programme "weighed" on the company.