2016-05-12t131621z_01_gggssib01_rtridsp_3_safrica-power-eskom-12-05-2016-21-05-06-485

Eskom’s downgrade by S& P Global Ratings is a vote of no confidence in the power producer and its leadership specifically and in the relatively weak corporate governance of State-owned Entities in South Africa‚ the Democratic Alliance says.

Natasha Mazzone, DA spokesperson on public enterprises, said this would only serve to place further pressure on the fiscus due to the R350 billion in Government Guarantees that had been extended to Eskom.

 While giving reasons for the downgrade to BB with a negative outlook‚ S& P said Eskom was facing financial pressure due to an ongoing court case against SA’s energy regulator. It also said Eskom’s government guarantee of R350bn was due to expire in March and no decision had been made to extend it.

“We are also concerned that Eskom’s capital structure and free cash flow remain at unsustainable levels‚ even if its liquidity position and operating performance should show some improvement during the current fiscal year‚” S& P said.

Commenting on the downgrade on Saturday‚ Mazzone said: “This is sadly proof that Eskom has a severe lack of leadership both at board level and through the main Eskom stakeholder‚ the government‚ which is represented by Public Enterprises Minister Lynne Brown.

“Conditions at Eskom have been going from bad to worse despite repeated claims by the current board‚ soon to be ex CEO Brian Molefe and Minister Brown that all was well at the entity.

“This State Owned Entity is of crucial importance to the wellbeing of the South African economy. If Eskom is not run efficiently it has the power to bring the country to its knees‚ as happened during the load shedding period.”

Mazzone added that the downgrade was dreaded but virtually inevitable due to conditions at Eskom.

“It is more obvious than ever that urgent intervention in the leadership of Eskom is required and that Eskom is in no position to contemplate the mammoth multi trillion Rand Nuclear project.”

S& P is expected to make an announcement next week on South Africa’s sovereign credit rating‚ which is currently just one notch above subinvestment grade or junk status.