South Africa: Eskom Signs USD 2.5 Billion Loan Deal with Chinese Bank

South Africa’s largest power producer- Eskom has signed a USD 2.5 Billion (approximately Rand 33 Billion) loan agreement with the China Development Bank. The agreement will form part of the funding of Eskom’s build programme and specifically the Kusile power station.

The successful conclusion of the loan agreement brings Eskom in line with the company’s commitment to imminently secure 62% of the financial year 2018/19 funding.

Eskom’s recent annual result indicates that the a total fund of R 72.1 Billion has been earmarked as borrowing requirement for 2018-19 period, of which 22% (R 16.1 Billion) has been secured. The company is firmly committed to increase funding to 62% during the current year.

Commenting on the recent loan deal Eskom’s chief financial officer has said that “Both local and international financial markets have demonstrated an improved appetite for the company’s credit and we are confident that we will fully execute the required funding for the year.”

Coal Shortages at Power Plants:
Eskom generates approximately 95% of the electricity used in South Africa and approximately 45% of the electricity used in Africa. The company operates 30 power stations with a total nominal capacity of 45,561 MW, out of which 37,867 MW are coal-fired power plants.

Despite recording many highlights during the last fiscal, Eskom’s major cause of concern had remained the coal stock levels, as seven of its coal-fired plants ended the year below the minimum stock level.

Source: Eskom’s Annual Result

Coal stock days remained significantly higher than target largely due to more coal than required being delivered to Lethabo, Medupi and Kusile power stations. Excluding the above, the normalised coal stock stood at 28 days, well below the target. This was partly due to a number of stations with coal stock days below required minimum levels.

At the end of Jun’18, coal stock levels at 8 power plants had fell below the minimum levels namely- Arnot, Camden, Duvha, Hendrina, Komati, Kriel, Majuba, and Tutuka.

To address the low coal stock situation, Eskom has initiated a recovery plan which includes working with the National Treasury on ways to accelerate the coal procurement process from the Tageta mines.

South African Coal Offers:
Coal shortages at Eskom coupled with issues regarding production, transport and weather have continue to constrain coal supply growth, which is supporting the South African coal prices.

South African coal index, API-4, continued its stay above the 100 USD mark, was assessed at USD 104.05 for Aug’18 as on 26 Jul’18.

Market participants have informed that low buying from India is currently weighing down the coal offers from Africa, as buyers had already secured adequate stock for the monsoon period. South African 5500 NAR coal was offered at USD 87-88/MT, FoB Richards Bay.

However, the month of Aug’18 might witness higher coal buying from India, as the seasonal increase in power demand would incite more consumption at power plants, and it may happen that CIL would prioritise power sector for coal supply ‘again’ as was the case last year.