Eskom's future is dark

South Africa must find R250-billion within weeks to prevent the status of Eskom bonds being cut to "junk" and the country's credit rating being dragged down further, Public Enterprises Minister Lynne Brown said yesterday in Johannesburg.

The government is considering injecting capital and making convertible loans to the state-owned utility, Brown said.

Eskom is rated BBB-, the lowest investment grade, by Standard & Poor's, and there is a 50% chance of another downgrading by the middle of next month.

Said Brown: "We are looking at how to get Eskom out of its trouble because it has a short time in which to prove to credit agencies that it is on a good footing.

"The main thing is to prevent a downgrading of Eskom , and of the country as a whole, by the credit agencies."

Eskom, which provides 95% of this country's electricity, has a funding deficit of R225-billion and has been forced to implement "load-shedding" after decades of under investment in power stations.

A downgrading of its bonds to junk status would significantly raise borrowing costs for Eskom, this country's biggest seller of corporate bonds.

The National Energy Regulator of SA last week approved a tariff increase for Eskom that could add five percentage points to the 8% hike previously agreed to. And power prices might have to rise even further to enable Eskom to plug its funding gap.

In addition to capital injections and convertible loans, the government "is looking into guarantees that we could give Eskom", Brown said. The government currently backs R350-billion of Eskom debt, of which the company has used a third.

Mark Davidson, director of infrastructure ratings at S&P, said: "With costs escalating and the government [rating] being downgraded, we don't deem [the state guarantees] to be full support in all circumstances any more.

"The total debt could exceed R350-billion ."

Selling Eskom to resolve its funding needs has been ruled out, said Brown.

"The government would not want to privatise Eskom because it must have access to the economy, how it directs the economy to fulfil its developmental goals."