Eskom may need to raise R50bn more debt than initially forecast

State power utility Eskom may need to raise an additional R50-billion more debt than it had initially anticipated, owing to the fact that it was granted yearly tariff increases of 8% by the regulator rather than the 16% it had sought.

Its overall debt position is, therefore, likely to rise to R450-billion in the coming few years rather than the R400-billion initially forecast to enable it to complete its current build programme, which continues until 2019.

The cost of the build programme has also increased, with the price tag for delayed Medupi power station having increased from R91-billion to R105-billion. Kusile?s costs have been reaffirmed to be R118.5-billion, while Eskom is investing R25.9-billion to build the Ingula pumped-storage scheme, R32.3-billion on transmission projects and had nearly completed the R25.1-billion return-to-service of Camden, Grootvlei and Komati.

By the end of March, the group had already raised nearly R203-billion, up from R182.5-billion last year. It has also indicated that further debt of R200-billion would be required in line with a R300-billion funding plan for the period 2010 to 2017.

But the lower-than-requested tariff increases outlined by the National Energy Regulator of South Africa (Nersa) in February means that it will now probably have to raise an additional R250-billion.

Former CFO Paul O?Flaherty describes the requirement as a ?significant ask? and says it would push Eskom?s leverage to the maximum level possible. ?R450-billion of potential debt on your balance sheet is a significant amount for any company,? he argues.

The group has a strategy of raising long-term debt and 56% of its current debt has a payback period of greater than 10 years, with a debt maturity profile extending to 2042.

CEO Brian Dames says the third multiyear price determination (MYPD3) has resulted in a R225-billion financial gap, which it is looking to close using a range of instruments.

Mechanisms being considered include raising additional debt and returning to Nersa to tap into the Regulatory Clearing Account mechanism, which allows it to recover ?prudently incurred? costs.

It is also in the throes of a ?business re-engineering? exercise to align it to the MYPD3, which could result in a scaling back of the utility?s mandate and even some capital programmes.

?This organisation is in massive transition,? Dames says.

The utility has, to date, secured 82.9% of its R300-billion funding plan from a range of sources, including bond markets, export credit agencies, development finance institutions and a shareholder loan.

Dames says Eskom has a firm plan for the first two years of the MYPD3, but that the picture becomes less clear from 2015 onwards.

Edited by: Creamer Media Reporter

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Source: http://www.engineeringnews.co.za/article/eskom-may-need-to-raise-r50bn-more-debt-than-initially-forecast-2013-07-11

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