Standard & Poor's downgrades Eskom

The ratings agency said the negative outlook reflected Eskom's operating performance had not yet stabilised.

FILE: Despite the suspension of top management, a continued risk if load shedding & an inquiry into the power house, Eskom says it’s business as usual. Picture: Reinart Toerien/EWN

JOHANNESBURG - Standard & Poor's (S&P) on Thursday downgraded Eskom to BB-plus following management suspensions.

The ratings agency said the negative outlook reflected that Eskom's operating performance has not yet stabilised due to rising costs.

It also said it was of the opinion that the material execution risk remained associated with government's support plan.

S&P's Mashiyane Mabunda explained, "We're not too sure if they're aware of how much is at stake in terms of financing needs for operations as well as the build projects for the Medupi and Kusile power stations, which they're far from finishing."

Energy expert Ted Blom said he was disappointed by the downgrade.

"There have been several warning signs over the past year that they weren't comfortable with the direction on which Eskom was going. Seeming lack of confidence by the government has seemingly perpetrated the view of Standard & Poor's."

Peter Attard Montalto, Emerging Markets Economist at Nomura, said the level of support by government should have prevented a downgrade.

"Even given support by government, they're now so concerned by the level of the weakness of corporate governance and management at Eskom after the suspensions, so they have to downgrade."

The rand has reacted to the ratings announcement, extending losses against the dollar.

Earlier, the rand dropped to R12, 32 to the dollar, a two percent decrease.


Meanwhile, Eskom said it was business as usual despite top management being suspended, voluntary retrenchment packages withdrawn and the ongoing challenges with keeping the lights on.

Exactly one week ago, it was announced that Eskom would launch an independent inquiry to address various challenges including cash flow problems and delays with its build program.

There hasn't been any load shedding for the past three weeks but Eskom said the risk remained high as the weekend approaches and diesel and water reserves start running low.

At the same time, the inquiry into Eskom started this week, with claims that the morale was low.

Voluntary retrenchment packages offered recently have also been put on hold.

But Eskom's Khulu Phasiwe said they were carrying on as normal.

"Many of us are resilient; we continue to do what we're hired to do, so for us it's business as usual, which is to keep the lights on."

Deputy President Cyril Ramaphosa, who has been tasked with heading a turnaround strategy for Eskom, said they wanted to retain skills and assured that there was light at the end of the tunnel regarding the power challenges.