An economist has warned that Standard and Poor’s (S&P) ratings downgrade of Eskom is almost certain to have a knock-on effect on South African consumers. The utility provider was unexpectedly downgraded to ‘junk status’ last week, motivated by a series of management suspensions within the company. The announcement has been coupled with the news that Eskom are also seeking a 25% tariff from the National Energy Regulator (Nersa).
S&P are a rating agency thatlooks at companies and countries, evaluating them based on their ability to pay back debt. The junk status awarded to Eskom is considered the lowest possible rating for any corporation.
And according to Yumna Ebrahim of Econometrix, Eskom’s release of senior staff was likely the nail in the coffin in terms of being seen as a high default risk. The move comes at a particularly difficult time for the embattled electricity provider, amidst an ongoing energy crisis and delays in the construction of its Medupi and Kusile power stations.
“So now when Eskom wants to raise money or they want to go and lend from anybody, their risk is going to be very high as indicated by the junk status. They are going to pay very high interest rates,” she explained.
This in turn will affect South African electricity consumers, with the downgrade likely to force Eskom to seek alternative means of fundraising, including tariff hikes.
“Given the problems the entity has been in, you know all of its projects have been delayed, they’ve been over budget, and now the last straw that pokes the camel’s back is the management. All of the senior management is gone, so where does the entity get its direction from?” Ebrahim questioned.
Already from April 1, direct Eskom customers will pay 12.69% more for electricity. It was this weekend reported that the power giant intendeds to apply for a further 9.58% increase from the National Energy Regulator of South Africa (Nersa). If it is successful, households can expect to be charged at least 22.27% more on their monthly electricity bills. Trade federation Cosatu has warned it will oppose Eskom’s application. Cosatu spokesperson Patrick Craven said if this increase is approved, it will have a devastating effect on consumers.
This is expected to spell an extremely difficult few months ahead for South African consumers. Apart from expected electricity tariff increases, fuel taxes are also expected to increase in April, with an increase also expected in relation to the depreciation in the rand value.
“The consumer is facing added pressure unfortunately, and obviously it reduces the amount of disposable income they have,” she said, adding that this would have a knock-on effect throughout the economy.
On a more positive note, Ebrahim said interest rates continued to remain relatively low in SA, advising that this was the perfect time for consumers to be retiring their debt. VOC (Mubeen Banderker)