South Africa Power Price to Rise 5.2%, Less Than Eskom Asked

JOHANNESBURG (Capital Markets in Africa) – South Africa’s energy regulator gave the state-owned power utility permission to raise its prices by an average of 5.2 percent from April 1, three quarters less than what the cash-strapped company had asked for.

Eskom Holdings SOC Ltd., which generates almost all of the nation’s electricity, had asked the National Energy Regulator of South Africa to allow it to increase tariffs by an average of 20 percent. Nersa Chairman Jacob Modise announced the decision Friday in the capital, Pretoria. The inflation rate was 4.6 percent in November.

“We only allow costs that we believe are prudently and efficiently incurred and it’s up to Eskom to fit within the budget that’s allowed,” Modise said.

The utility faces a wide swath of issues including corruption scandals linked to to the Gupta family, who have been accused of using their friendship with President Jacob Zuma to win contracts from the producer. Domestic demand for electricity is at the lowest in more than a decade, hurting Eskom’s revenue, even after prices rose at more than double the rate of inflation since 2007. The producer is the biggest recipient of state guarantees at a time when South Africa’s finances are buckling under lower tax revenue and higher debt.

Eskom’s credit rating was cut to a deeper junk level by Moody’s Investors Service last month, citing poor governance, weakening liquidity and the decreasing likelihood of government support. It lowered the producer’s long-term corporate family rating one step to Ba3, which means the debt poses “substantial credit risk,” Moody’s definitions show.

Utility ‘Disappointed’

Eskom is “disappointed” that it didn’t receive a double-digit increase, which has also been recommended by ratings companies, utility spokesman Khulu Phasiwe said.

Goldman Sachs Group Inc. said in September that Eskom was the biggest single risk to the South African economy and that the government needed to replace its management.

Yields on the company’s dollar bonds due in January 2021 rose after the decision, adding 5 basis points to 5.97 percent by 3:29 p.m. in Johannesburg.

Source: Bloomberg Business News