28 April 2014

South Africa: Eskom - This Is Not Going to End Well


Eskom's recent pleas to Treasury for a R50bn equity injection (i.e. money that it will not have to repay) gives us a small insight into just how badly things are going at the parastatal. The R50bn requested is, according to the Eskom finance chief, Tsholofelo Molefe, the minimum required. It also wants to increase the tariff increases to the already above-inflation 8% recently determined by Nersa, the electricity regulator. Eskom says that the current tariff will leave it with a cumulative revenue shortfall of R225bn by 2018.

This is probably the biggest crisis the country faces right now. Eskom supplies almost all the country's electricity and is also, measured by its South African revenues, one of the biggest companies in South Africa. It is a crisis that is unfolding in slow motion right before our very eyes.

Eskom is in the middle of a R350bn capital investment programme, primarily The Medupi, Kusile and Ingula Pumped Storage Scheme, all of which has been hit by massive delays. This compounds Eskom's position. As it raised debt to finance these projects, the interest payable amounts to around R29 billion per annum. At the outset, these projects, particularly Medupi and...

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