Fitch: Risks of Southern African Power Shortages Remain
Fitch Ratings-Johannesburg/London-21 January 2010: Fitch Ratings says in a report today that the risk of electricity supply shortages remains high across Southern African Development Community (SADC) countries in the short- to medium-term. This is due to the age of existing power plants, grid bottlenecks, limited inter-connections, high levels of required maintenance, and low reserve margins.
Fitch believes that the long lead time associated with the commissioning of required new generation capacity to meet future demand, as well as significant funding costs, will remain key obstacles for all the Southern African Power Pool (SAPP) member countries over the medium-term, and most importantly for the main regional generator Eskom. The agency presently rates Eskom's Long-term local currency Issuer Default Rating (IDR) at 'A' with a Negative Outlook, National Long-term rating at 'AAA (zaf)', and National Short-term rating at 'F1+ (zaf)'.
"The required capex for both generation and transmission projects across the SAPP is expected to adversely affect the standalone credit profiles of regional electricity utilities in the short- to medium-term," says Roelof Steenekamp, Director in Fitch's South African Corporate team.
"However, utility ratings in the region are supported by state-ownership and the support received from their respective governments. A combination of large electricity tariff increases, improved efficiency, and increased explicit government support will be required to soften the impact of new investments on leverage ratios and free cash flow (FCF)," Steenekamp adds.
Fitch notes that limited quick-fix solutions are available, and that over time, new generation capacity could also be rolled out by independent power producers (IPPs), but the timing for this will, among other factors, depend on improvements to regulatory frameworks, the differing legal environments, concessions, and progress towards achieving cost-reflective tariffs to allow for acceptable returns on investment.
The report, entitled "Southern African Power Landscape - Overview and Credit Drivers", provides an overview of the electricity market in the SADC. It also addresses key credit issues, such as the need for significant expansion in generation capacity and the development of the transmission network. It is available on the agency's public website at www.fitchratings.com.
Contact: Roelof Steenekamp, Johannesburg, Tel: +27 11 380 0903; Erwin Van Lumich, Spain, Tel: +34 93 323 84 03; Andrew Steel, London, Tel: +44 (0) 20 7682 7486.
Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.
Additional information is available on www.fitchratings.com.
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