Gener8

Eskom's capital expansion plans in limbo
Business Report on September 17, 2008.  
By Quentin Wray

Johannesburg - Power producer Eskom will have to wait until the end of the month before it can finalise the details of how it is going to finance its ambitious R343 billion capital expansion programme.

However, a top official is confident that investors "like the Eskom story", especially in the wake of the subprime financial market crisis that has already claimed the scalps of some of the biggest names in global finance.

Eskom spokesperson Fani Zulu said that following last month's downgrade by ratings agency Moody's Investors Service to Baa2, the second-lowest investment grade, the utility's ability to raise debt had been "impaired". This had been exacerbated by this week's financial meltdown.

Yet Eskom's attractiveness to investors, whom it hopes to tap for R150 billion over the next five years, would be boosted by the fact that the national treasury said in August that it would be prepared to guarantee Eskom's debt after Moody's' ratings cut. However, Eskom management had to wait until Standard & Poor's, the other major ratings agency, announced its decision on Eskom. This was expected only at the end of this month.

Eskom will be building power stations for at least the next 25 years. "This is the beauty of the Eskom story," Zulu said.

He said Eskom would look at diversifying its investors.

These would be split along geographical lines - some local and some foreign - and among different financial institutions offering a variety of types and maturities of debt instruments.

Eskom has struggled to meet demand. The treasury has budgeted R60 billion over the next three years in the form of guarantees to help the power firm pay for a R343 billion, five-year expansion programme.

National treasury director-general Lesetja Kganyago said yesterday that these guarantees would not hurt the national budget but that consumers should be prepared for higher tariffs.

Transnet spokesperson John Dludlu said that while the turmoil in global markets was concerning, it was not expected to significantly effect on the parastatal's capex programme.

"We have an attractive portfolio of bankable projects," Dludlu said. "We will predominantly fund our investment programme from the local debt capital markets.

"Where we need to tap the international markets, we will do so after thorough analysis of market conditions.”