Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees?
The South African government offers various support mechanisms to support Eskom, the state-owned electric utility, and the independent power producers in providing low-cost electricity, including credit and payment guarantees. Guarantees constitute...
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| Language: | English |
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/162801547570854145/Managing-South-Africas-Exposure-to-Eskom-How-to-Evaluate-the-Credit-Risk-from-the-Sovereign-Guarantees http://hdl.handle.net/10986/31171 |
| Summary: | The South African government offers
various support mechanisms to support Eskom, the state-owned
electric utility, and the independent power producers in
providing low-cost electricity, including credit and payment
guarantees. Guarantees constitute contingent liabilities to
the government and pose risks to government finances. This
note illustrates the methodologies explored by South Africa
to assess the credit risk from guarantees extended to Eskom.
To manage and closely monitor this risk, a dedicated Credit
Risk directorate in the Asset and Liability Management
division at the National Treasury of South Africa has
implemented a risk assessment and management framework,
supported by the World Bank Treasury. The team developed a
sector-specific internal credit rating methodology to assess
Eskom's creditworthiness. Additionally, the team
developed a scenario analysis methodology to assess
Eskom's ability to service debt from cash flows and
cash reserves. The scenario analysis tool is currently used
on an ad hoc basis to feed into the various scenarios that
are considered for the budget process. Risk assessments are
reported to the Fiscal Liabilities Committee on a quarterly
basis for risk monitoring and to support recommendations for
taking on new contingent liabilities, such as government
guarantees. The Fiscal Liabilities Committee advises the
minister of finance and is responsible for the determination
of the processes and policies for approving guarantees and
guarantee-like transactions. The Fiscal Liabilities
Committee is generally mandated to promote the optimum
management of the government's contingent liabilities,
including guarantees. The implementation of further risk
mitigation and monitoring tools, such as risk-based
guarantee fees, budget allocations, and a contingency
reserve account, is under discussion. |
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