CAPE TOWN: South Africa’s state owned company ESKOM will have a junk credit rating announced by the international financial service provider Standard and Poor’s (S&P). ESKOM faces a 225 billion Rand funding gap between now and 2018, in addition to critical issues surrounding both its power output and the condition of its infrastructure. Whilst the utility battles to carry out vital maintenance work, millions of South Africans will face load shedding up to ten hours a day.
The agency downgraded ESKOM’s credit rating from BBB to BB+ which indicates that S&P believes that the company has recently become less credit-worthy. The rating suggests that ESKOM is at risk from long term uncertainty and could default on one or more of its debts given unfavourable conditions.
The effect of this junk credit rating not only means that people will have less confidence in the company but also means that ESKOM will be faced with higher interest payments on any loan it takes out to source investment, it will also mean that some lenders will be barred from lending to the company altogether.
The company has been spending up to 1 billion Rand per month on diesel to fuel its emergency open cycle gas turbines in an effort to meet with at least some of the urgent demand for power. This comes at a time when the public utility recently announced that it could be raising its energy prices by up to 25 percent next year in a move that will surely push many people towards rationing their energy even further.
