The South African government is set to guarantee R176 billion of state-owned power utility Eskom's existing and new debt, it was confirmed on Thursday (11th February).

Finance Minister Trevor Manuel announced in his 2009 budget that he will underwrite R26 billion worth of existing debt, plus issuing a further R156 billion support package over the next five years.

The news comes after the National Treasury pledged R60 billion to Eskom in its 2008 budget, with R10 billion handed over in December and R20 billion and R30 billion set to be transferred in the 2009-10 and 2010-11 financial years respectively.

The input is particularly crucial for the utility as its credit rating has been downgraded by a number of ratings agencies, meaning it would struggle to access funds in the current economic landscape.

Eskom spokesperson Fani Zulu and Jaco Kleynhans, spokesperson for trade union Solidarity, both welcomed the announcement.

Meanwhile, Jacob Maroga, Chief Executive of Eskom, explained that the utility's main short-term challenge is to focus on its core businesses and keep below its revenue to ensure continued survival.

He told Reuters: "First we must recognise that all our major customers have been impacted by the global economic slowdown so revenue is under stress, our customers are under stress and our tariffs were already not where we wanted them to be before the falling off in demand.

"Projects we are already committed to - by which I mean we have signed contracts and there are supplying mines already being developed or expanded - we will prioritise funding for these."

Mr Maroga also confirmed that Eskom will be putting in an application for a tariff increase next year in order to facilitate its various expansion strategies, despite falling power consumption.

Indeed, the utility has already claimed that it expects electricity demand to fall in South Africa during 2009 as a number of its main industrial customers alter their output in light of the economic downturn.

"The impact of the global slowdown, as well as the commodity cycles, is really impacting on our iron and ferroalloy customers hard, and you would have seen that a number of ferrochrome furnaces would be decommissioned," demand-side General Manager Andrew Etzinger told Engineering News in November.

"We are already at the start of a process of a possible step-change in electricity demand, but we would need to see how that turns out."

The confirmation of the loan guarantees was also delivered alongside news that Eskom and the National Treasury are continuing talks with the World Bank and other multilateral agencies in relation to the additional funding.

An agreement between the three parties was originally struck up in December, with $5 billion being invested for an expansion programme.

Saleem Karimjee, Southern African Manager for the International Finance Corporation, the private sector arm at the World Bank, told Reuters at the time: "Eskom will raise finances from the World Bank, and numbers to the extent of $5 billion over five years have been discussed, so that has been agreed in principle."

Sources:

State provides Eskom with loan guarantees, gives SAA more (11/02/09)
http://www.engineeringnews.co.za/article/state-provides-eskom-with-loan-guarantees-gives-saa-more-2009-02-11

RTRS-INTERVIEW-UPDATE 1-Eskom set on efficiency drive-Maroga JOHANNESBURG (11/02/09)
http://uk.reuters.com/article/oilRpt/idUKLB17254520090211?pageNumber=2&virtualBrandChannel=0

Eskom says electricity demand likely to fall next year (13/11/08)
http://www.engineeringnews.co.za/article/eskom-says-electricity-demand-likely-to-fall-next-year-2008-11-13

UPDATE 2-World Bank agrees to lend Eskom up to $5 bln (04/12/08)
http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSL431095720081204?pageNumber=2&virtualBrandChannel=0&sp=true