Eskom to approach WB?

Africa’s largest power utility, Eskom, could approach the World Bank, or other large banks, to borrow up to $1-billion a year for the next five years.

The move might become necessary after ratings agency Moody’s downgraded the South African power utility, making it more difficult for Eskom to raise capital on financial markets. Eskom has confirmed that it was “rechecking” its funding strategy, which could see it borrowing from World Bank and African Development Bank, as well as from export credit agencies.

Eskom needs to spend billions after rolling blackouts across the country in early 2008 made it clear that the power house was running short of power. Power supply has since stabilised, but the damage has already been done. Blackouts cost Africa’s largest economy billions in lost productivity, unsettling foreign and local investors.

Moody’s downgraded Eskom’s local currency rating to Baa2 from A1 and cut the foreign currency rating to Baa2 from A2. The four notch local currency downgrade was based on Eskom’s aggressive capital investment programme and its inability to recoup costs through higher tariffs, which led to a lower stand-alone credit profile. The result would mean higher tariffs in the future for a country that once boasted the cheapest electricity in the world, unless government agrees to guarantee loans.

South Africa’s treasury has budgeted R60-billion (about $8-billion) over the next three years to help fund Eskom’s R343-billion ($46-billion) 5-year expansion programme.