Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

Weaknesses:
Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
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o Continued government support and the potential for the government to provide
additional financial support if necessary.
o Eskom‟s operational challenges, given the build programme
o Regulated tariffs will not be fully cost reflective in the short term
o Regulatory risk and the government‟s plans to introduce IPPs
o Weak credit metrics on funding and liquidity
Projected credit profile based on MYPD 3
Table 36 sets out Eskom‟s credit metrics based on this application. Eskom does achieve
most of the standalone investment-grade metrics in 2017/18.
Table 36: Credit ratios based on the MYPD 3 tariff adjustment
Credit ratios 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
FFO/Gross debt (Target >20%) 4.9% 9.5% 9.8% 12.0% 16.9% 27.3%
Gross debt?EBITDA (target 2.5) 1.0 1.9 1.5 1.3 1.9 1.8
1 FFO: Funds from operations
2 Earnings before interest, depreciation, taxes and amortisation
3.6.2 Government support
Eskom currently receives extraordinary support from the government, its sole shareholder,
which is related to the importance of electricity security to the country‟s economy.
The government has provided guarantees amounting to R350 billion and linked Eskom‟s
credit ratings to its sovereign rating, raising Eskom‟s standalone sub-investment grade rating
to that of the government. However, this support may have unintended consequences for the
government and Eskom. Should the government be downgraded, Eskom‟s credit profile will
follow. Similarly, should Eskom‟s credit position deteriorate, it will have a negative effect on
the country‟s sovereign rating. Migrating towards a standalone investment-grade rating is
therefore important not only for Eskom but for the whole country.