February 18, 2020 / 12:05 PM / 5 months ago

South Africa's Eskom needs cash injection to avoid debt crisis - CEO

CAPE TOWN, Feb 18 (Reuters) - South Africa’s ailing power utility Eskom urgently needs more cash to stabilise its ballooning debt pile with the funds coming from a rise in tariffs or new equity, new chief executive Andre de Ruyter told lawmakers on Tuesday.

Eskom, which supplies 90% of South Africa’s power but has struggled to meet demand, had a bid for a big electricity tariff increase rejected by a court this month.

Eskom’s urgent application to the court for a tariff increase involved hiking rates by 16.6% from April 2020 and a further 16.7% from April 2021.

It said its proposed urgent rate hike followed an error by the regulator Nersa, which in 2019 set Eskom’s tariff rises at 9.4% for 2019/20, 8.1% for 2020/21 and 5.2% for 2021/22.

“The issue of Eskom debt has to be addressed to make Eskom sustainable,” de Ruyter told parliament’s Standing Committee on Public Accounts.

The utility has debt of about 450 billion rand ($31.4 billion), mostly backed by the government, and is struggling to service the interest on its borrowing due to falling revenues. Its access to capital markets has also been constrained by years of mismanagement.

“The money is going to have to come from somewhere. Either it comes from a tariff increase or it comes from an equity injection. It (the debt) doesn’t just disappear. In fact it creates a very significant risk to the sovereign,” said de Ruyter.

In July, the government allocated Eskom 59 billion rand over two years to service its debt, on top of the 10-year, 230 billion rand injection it provided months before that.

The utility has been forced to impose several rounds of severe power cuts in the past year that have dragged economic growth lower and increased the risk of credit downgrades, especially from Moody’s, the last agency that gives South Africa an investment grade rating.

Writing by Mfuneko Toyana; Editing by Edmund Blair

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