South Africa president seeks debt swap alternatives for Eskom

The logo of state power utility Eskom is seen outside the Koeberg nuclear power plant near Cape Town, South Africa, March 20, 2016. REUTERS/Mike Hutchings/File Photo

The South African government is looking at alternative options to pull out state run power company Eskom out of its financial doldrums.

South African President Cyril Ramaphosa

This as President Cyril Ramaphosa expressed reluctance to a debt swap for the company on fears it could pile onto the state’s existing debt.

Eskom, which has had to implement power cuts due to coal shortages and poor plant performance, said last week it wants the government to take on 100 billion rand ($7 billion) of its debts, about a quarter of its total borrowings of 420 billion rand.

But according to Ramaphosa, there is need to look at other options to shore up the company’s balance sheet.

“The debt swap that Eskom has come up with is just going to descend us into further deeper debt as a country, so we have said we need to look at other options,” Ramaphosa said in an interview on 702 Talk Radio on Thursday.

“Eskom is very important for the life of our country and tomorrow I will be announcing a task team that will be looking at Eskom in terms of the current difficulties.”

The president said the team would, among other things, look into Eskom’s business and funding model and how the power utility should be structured.

Eskom supplies more than 90 percent of the country’s power.

Moving Eskom’s debt to the government’s balance sheet put South Africa’s sovereign credit ratings under pressure.

Moody’s is the last of the “big three” ratings agencies to have South Africa’s debt in investment grade, with S&P Global Ratings and Fitch rating South African debt as sub-investment grade.

“We are working very hard to upgrade ourselves and improve our investment rating. We want to get out of this downgrade situation,” Ramaphosa said.