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The SA Daily 15 February 2019

Eskom cash flow crisis

Shireen Darmalingam

  • To recap: Eskom unexpectedly implemented Stage 4 load-shedding on Monday, taking 4,000 megawatts of demand off the grid to prevent a complete collapse. The Department of Public Enterprises noted Eskom being “technically insolvent and will cease to exist at current trajectory by April 2019”. The minister further noted that problems are structural, operational, and financial. However, a department spokesman has since amended “insolvent” to “facing liquidity challenges”, noting that Eskom’s liabilities do not exceed its assets.
  • Eskom’s debt comprises 15% of SA’s sovereign debt. Thus, government taking on Eskom’s debt would put SA’s sovereign rating at risk of a downgrade. Moody’s ratings agency is due to release its SA ratings review on 29 March.
  • Eskom’s cash flow is deeply concerning. The utility’s debt has ballooned to R419bn, from just R40bn in 2008. In addition, Eskom’s income can no longer pay the interest on its debt. Cash generated by operations declined by 8.1% y/y in HY:19, to R27.1bn. At the same, the cash interest cost increased by 12.9% y/y, to R17.7bn, and it is currently at 65% of cash flow from operations (see chart below).
  • President Ramaphosa said yesterday that government would involve labour unions in rescue plans for Eskom.
  • We look to next week’s Budget 2019 which will likely outline the proposed measures to aid Eskom at a time of constrained public finances.

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