Government will provide up to R60bn to support the financing of Eskom's investment programme, on terms structured to assist in meeting the power utility's cash flow needs.
Finance minister Trevor Manuel's announcement of a government plan to support Eskom's financing activities has helped to reassure the bond market and should also send an important signal to global ratings agencies.
In a release issued this week, Moody's says that, to maintain its current A1 rating for Eskom, it would expect to see "absolute and unconditional support for Eskom enunciated by government".
Manuel did not spell out details of the proposed financial support, and made no mention of a guarantee. But he emphasised the support was not a grant. "The return on investment in power generation is very long-term," he said. "The repayment of debt must be similarly deferred."
The R60bn will be required over the next five years, and government expects that about R20bn will be drawn over the three-year medium-term expenditure framework period. This is provided for in the budget's contingency reserve.
Manuel is also aiming at encouraging the use of renewable energies by introducing a new 2c/kWh levy on power generated by coal-fired power stations. This will generate R2bn in 2008/2009 and R4bn in 2009/2010.
Eskom's capital expansion plans over the next five years amount to R343bn, with about 73% earmarked for power generation projects.
This is headed by two large new coal-fired plants, Medupi in Lephalale and Bravo near Witbank, which will each cost more than R80bn and produce about 4 500 MW each.
Provisional estimates show that Eskom's expenditure will be R47bn in 2008/2009 and then rise to R80bn in each of the next two years.
WHAT IT MEANS
 State encourages use of renewable energy
R60bn may not be sufficient for Eskom
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Eskom CE Jacob Maroga says investment plans are being based on 6% growth projections for SA.
During this period, while new power stations are being built and tariffs are steadily increased and revised to encourage efficient electricity use, Eskom's balance sheet will be under stress.
To fund its R340bn expansion programme over the next five years Eskom estimates it will raise about R150bn on local and international debt markets and an estimated R80bn from its tariff income. It has asked government to support it to fund the remaining R100bn-odd needed - so the R60bn Manuel has set aside on its own won't be enough.
Moody's warns that Eskom's financial profile will come under pressure in the future. This will occur partly because of its debt-funded capex plan, but also because higher costs of coal and revenue lost through load shedding and unplanned shutdowns will place pressure on its margins.
