Eskom to tap global bond markets

| Friday September 10, 2010 00:00

Eskom, which uses mainly coal-fired power stations to supply most of the power to Africa's largest economy, needs funding for a planned multi-billion dollar programme to help alleviate chronic power shortages.

The utility is waiting for government approval of its plan to raise R45-billion to R50-billion over the next three years, Paul O'Flaherty, Eskom's finance director, told Reuters on the sidelines of a parliamentary briefing.

'We will be looking at the US and European bond markets where we think there is a lot of appetite for Eskom,' he said. 'We will have to work out when the market appetite is at its best, but it should be this calendar year. That's our intent.'

Government approval is expected within weeks, he said.

South Africa's national grid nearly collapsed in early 2008, forcing mines and smelters to shut and costing the country billions of dollars.

O'Flaherty said Eskom's total funding gap over the next seven years stood at around 45 billion rand, although most of that arose in the next three years.

Later he told journalists that government, which has provided a debt guarantee to Eskom of 176 billion rand, was looking to recapitalise the utility as well as providing further loans or a hybrid of the two. In 2009, the National Treasury agreed to lend Eskom 60 billion rand over three years.

'Government is 100 percent in support of all of our options, and it's a question of balancing the sovereign investment grade rating and Eskom's investment grade rating and what is best for both,' O'Flaherty said.

A downgrade of Eskom's rating would impact its ability to raise money on international markets.

Eskom chief executive Brian Dames told lawmakers the utility, which provides about 95% of the country's power, was renegotiating its contracts and could pay more for coal.

Last week a senior Eskom official gave Reuters details of the impact that inferior coal was having on electricity production.

'We are engaging with the mining companies. We may have to renegotiate contracts and pay more for the coal as well as invest in plants that clean up the coal,' Dames said.

South Africa lost up to 1, 000 MW of capacity every day due to poor coal quality at its power stations, he added.(Reuters)