Eskom guarantee up R174bn

The government has agreed to double its loan guarantee to the state power utility Eskom to enable it to complete its construction programme by 2017.

Finance Minister Pravin Gordhan said yesterday he had concluded discussions with Barbara Hogan, the minister of public enterprises, and would add a further guarantee of R174-billion, underwriting a total of R350-billion of Eskom debt.

Eskom's financial director, Paul O'Flaherty, said later that further announcements were likely within about a month on the corporation's request for a further recapitalisation by the state.

"Today's announcement is part of a package ... We need a solution to put more equity into Eskom. Those discussions are being concluded now," he said.

He said the corporation needed to be recapitalised to protect its foreign-currency risk rating and ensure a reasonable rate on its debt.

Lungisa Fuzile, head of the Treasury's asset management unit, told MPs the government did not expect to be called on its guarantee.

"Eskom is a financially sound entity," he said.

O'Flaherty said the terms of the new guarantee had yet to be finalised, but that he expected the Treasury to charge about 30 basis points for underwriting Eskom's debt.

A market analyst said Eskom was believed to be looking for about R20-billion from the government in addition to the subordinated loan of R60-billion already granted and largely used.

Gordhan said the new guarantee would allow Eskom to complete the construction of the Medupi power station and the companion Kusile plant, which is scheduled to start generating electricity late in 2014 and to bring its final unit online at about the end of 2017.

"This gives the appropriate reassurances to everyone that the government is standing by Eskom," Gordhan told MPs in parliament's finance committee.

Eskom delayed the construction of the Kusile plant by six months amid concerns about funding.

Eskom spokesman Hilary Joffe told Business Times the guarantee would enable Eskom to finish its complete existing construction project according to the current timetable and bring an additional 12000 megawatts onto the system by the end of 2017.

O'Flaherty said Eskom had taken up R50-billion of the government's loan and had drawn down R119-billion of the initial R176-billion guarantee.

President Jacob Zuma said at the weekend, when he opened the utility's refurbished Camden power station, that Eskom would spend a total of R800-billion within the current planning period.

Joffe said Eskom would go to international debt markets early next year with a new bond.

The National Energy Regulator approved electricity tariff increases of about 25% to 26% this year and in each of the next two years, and has indicated it might be willing to grant a further two annual increases at about the same level.