November 25, 2014 / 2:06 PM / 5 years ago

UPDATE 1-South Africa's Eskom says needs more funding to keep lights on

* Power utility says finances “under strain”

* Rolling power blackouts instituted (Adds CEO comments, context)

JOHANNESBURG, Nov 25 (Reuters) - South Africa’s power utility Eskom said on Tuesday it needs a substantial injection of funds to ease a cash crunch and to avoid another credit downgrade as it struggles to keep the lights on in Africa’s most advanced economy.

Eskom instituted rolling blackouts for the third time in 2014 at the weekend as fuel reserves ran out, forcing it to call on industrial customers to cut their consumption by 10 percent.

“For the period ahead, we will be living on edge. Eskom has kept the lights on for the longest time ever, even when the company could not bear it,” said chief executive Tshediso Motana in an interim results presentation.

After decades of selling its services cheaply, Eskom has been sharply raising prices as it scrambles to pay down debt used to fund the building of new power stations to meet rising demand. Eskom supplies virtually all power to South Africa.

The first unit of its Medupi power plant is still on track to come online in December, but the project is almost two years delayed.

The government said last month it would inject 20 billion rand ($1.8 billion) of cash into the struggling utility and said it could also convert its existing 60 billion rand subordinated loan to equity.

Even with the cash injection and permission to raise electricity tariffs granted by the energy regulator, Eskom said its “financial health is under strain”.

“Eskom has to obtain adequate funding to ensure liquidity, thereby supporting its status as a going concern and to avoid further ratings downgrades,” the utility said in a presentation.

Eskom’s net profit fell 24 percent to 9.3 billion rand in the six months to end-September, and it forecast a 93 percent decline in full-year net profit to 500 million rand.

Ratings agencies Standard & Poor, Fitch and Moody’s recently downgraded Eskom and chief financial director Tsholofelo Molefe said that “any further downgrade would seriously impede Eskom’s ability to raise external funding”. (1 US dollar = 10.9955 South African rand) (Reporting by Peroshni Govender; Writing by Zandi Shabalala; Editing by Joe Brock/Keith Weir)

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