JOHANNESBURG – South Africa’s cash-strapped power utility Eskom said it plans to borrow more than 20 billion rand ($1.6 billion) from the domestic market and international bonds and would renegotiate coal contracts to cut costs.
Eskom has already raised 49.5 billion rand in external funds, easing liquidity pressures, Chief Executive Brian Molefe said in a results presentation on Tuesday.
The company’s net profit was 3.6 billion rand for the financial year to end-March, half of the 7.1 billion rand it posted last year.
Debt rating agency Standard & Poor’s cut Eskom’s credit ratings to junk in March, which will likely raise its borrowing costs.
“Debt costs already increased in the past fiscal year and will do so more with more borrowing, add in the Fed hike to come and this is going in the wrong direction,” said Peter Attard Montalto, emerging markets economist at Nomura.
He said tariff increases would be a better option, but South Africa’s energy regulator rejected a request to hike electricity prices by 9.5 percent.
Eskom, which is scrambling to keep the lights on in Africa’s most advanced economy, has said the poor quality of coal used in its plants was exacerbating the problem by damaging its equipment. It also said it was paying too much for coal given a recent drop in commodity prices.
Eskom is seeking 2 billion rand ($157 million) in compensation from Glencore’s Optimum Coal Mine because of the poor quality of its coal.
Glencore disputes the claim, saying it supplied Eskom with the “highest quality coal”.
“Eskom’s financial position does not allow us to waive penalties or renegotiate contracts simply because of the sake of rescuing a particular mine. We are not in the business of rescuing mines,” Molefe said.
Eskom has to impose rolling power cuts on a regular basis to prevent the grid from being overwhelmed, in part because of the maintenance required for its aging fleet of power plants.
($1 = 12.7462 rand)
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