February 24, 2016 / 12:25 PM / in 2 years

South Africa guarantees Eskom's power purchase agreements

CAPE TOWN (Reuters) - Power purchase agreements between South African power utility Eskom and independent power producers (IPPs) are now categorized as contingent liabilities, adding about 200 billion rand ($13 billion)to government’s guarantee exposure from 2015/16, National Treasury said on Wednesday.

A man walks past electricity pylons as he returns from work in Soweto, outside Johannesburg May 15, 2012. REUTERS/Siphiwe Sibeko

The government issues guarantees, which will amount to 467 billion rand at 31 March 2016, to several state-owned companies, with Eskom accounting for 74 percent of the total guarantee portfolio.

The portion of the guarantees that firms borrow against, known as the exposure amount, is a contingent liability and creditors can call on government to pay the debt should any default occur.

“The probability of default is low, since the regulator generally approves tariff increases that accommodate these agreements. However, significant deterioration in Eskom’s financial position may increase government’s risk exposure,” the Treasury said.

Exposure amounts are projected to increase to 258 billion rand at the end of March, from 226 billion rand in 2014/15, with Eskom accounting for most of the increase.

Africa’s most advanced but struggling economy is diversifying its energy mix away from an over-reliance on coal-power plants to include greener wind and solar projects.

A successful independent power producers program, started in 2010, is expected to provide 7,000 megawatts of energy with 47 projects fully operational by mid-2016, up from the 6,377 MW procured at the end of December.

Treasury reiterated on Wednesday that government’s plan for 9,600 MW of new nuclear power would continue “at a scale and pace that is affordable.”

Additional funding of 200 million rand was available in 2016/17 for transactional advisers and consultants on the nuclear programme.

Energy investment amounts to 70 billion rand this year and will be over 180 billion rand over the next three years as construction on Eskom’s Medupi, Kusile and Ingula power stations is completed, said Finance Minister Pravin Gordhan.

($1 = 15.3266 rand)

Reporting by Wendell Roelf; Editing by Tiisetso Motsoeneng

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