World Bank - Africa Needs U.S. $93 Billion For Infrastructure

Abuja — The World Bank said yesterday that the amount needed to fix infrastructure in Africa is twice what was previously estimated. It put the new figure at $93 billion half of which, it noted, should go into boosting power supply.

A joint study just released by the bank from Washington cited examples of infrastructural challenges in the continent. African consumers pay twice as much for basic services as people elsewhere in the world.

A monthly basket of prepaid mobile telephone services costs $12 in Africa but only $2 in South Asia.

Resource-rich countries like Nigeria and Zambia can manage funding gap of four percent of GDP. For much of the rest of the continent, the task ahead is daunting.

The poor state of infrastructure in Sub-Saharan Africa cuts back national economic growth by two percentage points every year. Bank study team which assessed the state of infrastructure in 24 countries across the continent also discovered that poor electricity, water, roads and information and communications technology (ICT) reduces productivity by as much as 40 percent.

A separate statement from the bank in Midrand, South Africa, said the study, is "one of the most detailed ever undertaken on the African continent." It was jointly conducted by the African Union Commission, African Development Bank, Development Bank of Southern Africa, Infrastructure Consortium for Africa, the New Partnership for Africa's Development, and the World Bank. Besides relevant ministries, the study surveyed 16 rail operators, 20 road entities, 30 power utilities, 30 ports, 60 airports, 80 water utilities, and over 100 ICT operators, as well as the relevant ministries in 24 countries.

Results were derived from detailed analysis of spending needs and fiscal costs as well as sector performance benchmarks.

In other words, the study relied on based on country-level microeconomic models and covered operational and financial aspects as well as the country's institutional framework.

"Modern infrastructure is the backbone of an economy and the lack of it inhibits economic growth," says Obiageli Ezekwesili, World Bank

Vice President for the Africa Region and former Nigerian minister, who spoke from South Africa. "This report shows that investing more funds without tackling inefficiencies would be like pouring water into a leaking bucket. Africa can plug those leaks through reforms and policy improvements which will serve as a signal to investors that Africa is ready for business."

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South Africa - High drama at Eskom

Johannesburg - In a day of high drama, Eskom has been rocked by two high-level resignations and the return of CEO Jacob Maroga, raising concerns that foreign money to fund its expansion plans will now be harder to find.

Fin24.com's Sikonathi Mantshantsha reports that Allen Morgan, a non-executive director, tendered his resignation following that of chairperson Bobby Godsell. Morgan works at Kumba Iron Ore, owned by Anglo American.

Last week, Godsell announced to staff at Eskom that Maroga, who came under fire for his management of the parastatal, had resigned with immediate effect.

However, the ANC Youth League and the Black Management Forum insisted that he had not. The BMF charged that state-owned enterprises had become "slaughterhouses" for black professionals while the Youth League reportedly said Godsell had turned on Maroga because he was black.

Godsell resigned on Monday morning as news spread that Maroga was back in his office.

In a statement released on Monday night, Godsell said government was unable to support the board's original decision to accept the resignation of Maroga or its two attempts at resolving this dispute.

"In these circumstances, and with the best interests of the organisation in mind, the only course of action seems to me to resign as chair and as director."

Godsell said Maroga offered to resign on Wednesday October 28. "The board accepted the resignation. The board's legal advice is that the resignation was quite clear in its intent, and the board was entitled to accept it," said Godsell.

However, on Thursday Maroga denied resigning. Godsell said the board offered to submit this dispute of fact to binding private arbitration. "Mr Maroga has not responded to this offer."

Godsell continued that government, as Eskom's sole shareholder, has been unable either to support the board's original decision (to accept the resignation) or its attempts at resolving this dispute.

Serious challenge

Minister of Public Enterprises Barbara Hogan on Monday acknowledged Godsell's resignation and appointed Eskom non-executive director Mpho Makwana as acting chair. Makwana heads the Association for Communication and Advertising.

Analysts have expressed concern over the developments at Eskom.

"You will only see the effects of the current spat in about 10 years' time," warned Econometrix economist Azar Jammine. He added that the organisation will now have to deal with the current crisis instead of building infrastructure.

"This will now also have severe implications for Eskom's ability to carry out its infrastructure-building programme," he said.

Lumkile Mondi, chief economist of the government-owned Industrial Development Corporation (IDC), said government's undermining of the Eskom board presented a serious challenge for remaining board members.

"Boards are given the authority to look after the interests of the company, not individuals," said Mondi. "The board at Eskom has been undermined by the shareholder in the interests of individuals," he said.

Investment Solutions economic Chris Hart says this kind of interference is becoming a "familiar pattern" in state-owned enterprises, reports Fin24.com's Troye Lund .

The week's dramatics were akin to the recent power play over a new CEO at Transnet.

Senior ANC members expressed their disapproval (and threatened to take the matter further) when the board failed to shortlist parastatal executive Siyabonga Gama for the job. The position has yet to be filled.

Funding struggles

Ulrich Joubert, an economist at Kruger International, questioned whether Godsell's resignation reflected political pressure, which in turn could affect investors' willingness to fund the utility, already struggling to raise the billions of rands it needs to fuel its expansion.

"International investors don't like political intervention ... if Godsell resigned because of political interference in the managing of the business, then it's bad for Eskom and they will have to pay more to get the funding they need," he said.

Meanwhile, President Jacob Zuma's office refused to comment on Godsell's resignation. It also would not explain what had transpired at a meeting between Godsell and Zuma on Sunday, which followed a gathering of the ANC national executive committee where the matter was also discussed.

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South African Government to Offer Eskom Loan Gaurentees

South Africa's Treasury will provide electricity utility Eskom with loan guarantees of 175.97 billion rand ($17.71 billion) over the next 5 years to help it raise funds for spending requirements.

The Treasury said in its 2009 Budget Review, released on Wednesday, that the guarantees were in addition to a 60 billion rand, three-year direct loan to the company announced last year.

Eskom [ESCJ.UL], which is battling to meet growing demand, plans to spend 343 billion rand over five years to boost capacity but a global credit crisis had raised borrowing costs making it different for the company to raise finance.

Critics say years of under-investment in power generation and a rise in demand strained supply, leading to the power grid already collapsing in January last year.

The company has called for demand cuts, particularly from mines and industry, and has requested tariff increases to help meet planned spending.

The Treasury said it would guarantee existing bonds, the ES26 maturing in 2026, and the ES33 bond maturing in 2033, as well as floating rate notes maturing in 2026 and 2033.

The remainder of the guarantees would support the issuance of new local and international debt.

"If required, government would either repay the debt in its entirety or step into the shoes of Eskom and continue to make payments on Eskom's behalf," it added in a statement.

An annual limit, depending on cash flow requirements, would be set on the debt that the company could issue each year under the guarantees.

The Treasury also said it would consider guarantees for other state-owned companies, on merit.

"As the economic outlook and stability of these enterprises improves government will reduce its contingent liability exposure by issuing fewer guarantees and refinancing debt without such guarantees," it said.

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Standard & Poor’s (S&P) raises rating on Eskom,

ESKOM’s (South African Power Utlility) hopes of raising part of the money needed for its R343bn capital expenditure programmes received a boost yesterday when international rating agency Standard & Poor’s (S&P) revised its local currency credit watch status from negative to developing.

Eskom’s ability to raise money in local and foreign markets in order to meet the huge capital needs of the build programme, partly hinges on the various agencies’ ratings.

S&P yesterday said it had revised its local currency credit watch status from negative to developing. It used Eskom’s recent application to the treasury for guarantees on all existing and future debt as the reason for the move. Eskom submitted the application on Tuesday this week.

“In our view, Eskom’s submission strongly suggests that credit-enhancing guarantees in some form are likely,” the agency said.

The treasury last month alluded to its preparedness to offer guarantees to Eskom in order to enhance the utility’s credit rating.

S&P said the resolution of the credit watch depended on the nature and scope of the guarantee package the treasury would approve.

“The local currency corporate credit rating and the issue ratings, as well as the long-term national scale rating, could be raised if the treasury were to approve a guarantee for all existing and future debt,” the agency said.

“They could also be lowered if only certain classes of debt were guaranteed — hence the revision of the credit watch to developing.”

The agency said the ratings on the utility showed its critical role in SA’s economic development through its electrification programme.

Konrad Reuss, S&P managing director for SA and subSaharan Africa, said that while the treasury had publicly committed to the guarantees, “it is critical to have clarity on the nature of the guarantees. We would like to look at the legal nature of the guarantees.

“Are they going to be conditional, or unconditional?”

Eskom CE Jacob Maroga said : “We welcome the approach adopted by S&P and are satisfied that S&P appreciates the critical role of Eskom to the South African economy and ongoing efforts between Eskom and government to design an appropriate capital structure for Eskom.”

Maroga said that in order to get the funds for its build pro-gramme, the utility was making progress “on critical fronts, including shareholder support and a tariff path placing Eskom on course to achieve long-term financial sustainability”.