JOHANNESBURG – The rand on Monday surrendered its gains this year, backtracking nearly 1 percent to R13.769 against the dollar at 5pm, after Eskom implemented stage 4 load shedding for the first time in nearly five years.
The rand fell to its weakest level in almost three weeks as investors and credit ratings agencies flagged that the rolling power cuts indicated deep-lying problems at the debt-ridden power utility.
Moody’s reiterated that Eskom remained the biggest risk to the country’s fiscus.
The load shedding prompted an emergency meeting between Eskom bosses and Public Enterprises Minister Pravin Gordhan.
Lucie Villa, Moody’s lead sovereign analyst for South Africa, said financial support to Eskom, accompanied by measures that would stabilise its financial health, would be credit neutral on the country’s credit ratings.
“By comparison, financial support coming first, with measures aimed at generating savings at Eskom materialising much later – given that they would entail unpopular decisions on electricity tariffs and/or additional cost-cutting that would require agreement from key stakeholders – would be credit negative for the sovereign,” Villa said.
Yesterday, Eskom said it would escalate the power cuts to 4 000MW from 2 000MW after six of its generating units unexpectedly went off-line.
The announcement sparked panic in the market, with yields on rand-denominated government bonds due in December 2026 climbing 3 basis points to 8.68 percent, the highest this month.
The FTSE/JSE All Share Index rose 0.31 percent to 53 409.14, while the Top-40 Index was up 0.47 percent to 47 225.04 points.
Last week, Eskom said it expected to post a R20.1 billion loss for the financial year ended March, from the R15bn the embattled power utility forecast in its mid-year results.
Eskom’s debts reached 8.5 percent of gross domestic product late last year.
The government has already guarantees more than R250bn of Eskom’s R420bn debt.
President Cyril Ramaphosa last week said that the government would support Eskom’s balance sheet, and that the Minister of Finance, Tito Mboweni, would provide further details on this in the Budget speech later this month.
Analysts from the Bureau of Economic Research (BER) said in a research note that Eskom was set for a bailout.
“In our view, a government bailout of R15bn to R25bn is on the cards. Simply increasing the government guarantee will not be sufficient,” the BER said.
Energy Intensive Users Group programme director Shaun Nel said the lobby group was concerned about the rolling blackouts, as they would have a double impact on economic growth.
Nel said large industrial customers were in distress as a result of energy insecurity.
He said the mining industry and its sub-sectors, including beneficiation, would become the first casualties if nothing was done to address the problem. “There has been a large number of electricity interruptions already.”
Splitting up Eskom, said Nel, would in the long term assist the utility in addressing its financial sustainability. “But load shedding is a technical issue,” he added.
Energy expert Ted Blom warned that load shedding would have a negative impact on the economy, and singled out the mining industry as a sector that would suffer the most.
Blom said it would take about five years to sort out what he described as the Eskom mess. “Another thing is that Eskom is totally bankrupt, and I’ve been pointing that out in many hearings,” he said.