Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom
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Weaknesses:<br />
Overview of <strong>Multi</strong>-<strong>Year</strong> <strong>Price</strong> <strong>Determination</strong><br />
2013/14–2017/18 (MYPD 3)<br />
Page 77 of 144<br />
o Continued government support and the potential for the government to provide<br />
additional financial support if necessary.<br />
o <strong>Eskom</strong>‟s operational challenges, given the build programme<br />
o Regulated tariffs will not be fully cost reflective in the short term<br />
o Regulatory risk and the government‟s plans to introduce IPPs<br />
o Weak credit metrics on funding and liquidity<br />
Projected credit profile based on MYPD 3<br />
Table 36 sets out <strong>Eskom</strong>‟s credit metrics based on this application. <strong>Eskom</strong> does achieve<br />
most of the standalone investment-grade metrics in 2017/18.<br />
Table 36: Credit ratios based on the MYPD 3 tariff adjustment<br />
Credit ratios 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18<br />
FFO/Gross debt (Target >20%) 4.9% 9.5% 9.8% 12.0% 16.9% 27.3%<br />
Gross debt?EBITDA (target 2.5) 1.0 1.9 1.5 1.3 1.9 1.8<br />
1 FFO: Funds from operations<br />
2 Earnings before interest, depreciation, taxes and amortisation<br />
3.6.2 Government support<br />
<strong>Eskom</strong> currently receives extraordinary support from the government, its sole shareholder,<br />
which is related to the importance of electricity security to the country‟s economy.<br />
The government has provided guarantees amounting to R350 billion and linked <strong>Eskom</strong>‟s<br />
credit ratings to its sovereign rating, raising <strong>Eskom</strong>‟s standalone sub-investment grade rating<br />
to that of the government. However, this support may have unintended consequences for the<br />
government and <strong>Eskom</strong>. Should the government be downgraded, <strong>Eskom</strong>‟s credit profile will<br />
follow. Similarly, should <strong>Eskom</strong>‟s credit position deteriorate, it will have a negative effect on<br />
the country‟s sovereign rating. Migrating towards a standalone investment-grade rating is<br />
therefore important not only for <strong>Eskom</strong> but for the whole country.