Morning Brief – Medupi

Medupi
 

Taking to Twitter in his weekly Presidential address, Cyril Ramaphosa discussed the tale of grandeur and shortcomings that has engulfed South Africa’s newest and largest power stations. The President went on to criticise the building of Medupi power station and its twin Kusile, a project which Zuma’s successor blames for much of the financial trouble associated with state owned utility provider Eskom. Attacking these state owned enterprises amidst one of the most severe episodes of load shedding this year left the President facing a backlash on Twitter. Much of the anger and angst of citizens taking aim at the President revolves around his opening line: 

 

“When I visited Medupi power station for the first time two weeks ago, I was struck by how massive it is.”

 

Given that Ramaphosa was handed control of Eskom five years ago when serving as deputy president, it is concerning that the politician never visited the site he claims is the main source of the company’s, and in many cases country’s struggles. As if that wasn’t enough to anger citizens of South Africa yesterday, they were also reminded of the burden that the failing utility company has presented to their lives. Yesterday evening Eskom Holdings announced that it would move to Stage 6 of load shedding, meaning it would withhold 6,000 megawatts of power from the national grid. With the grid on a good day still struggling to meet demand, the load shedding withheld power sufficient to power approximately 30 million televisions. 

 

Last week it was revealed that the South African economy shrunk by an annualised 0.6% in the three months between July and September. With businesses winding down for Christmas and blackouts continuing, it will be surprising if South Africa manages to avoid its second recession in as many years. Moody’s Investors Service pushed the rating on domestic debt to a negative outlook at their last appraisal despite holding its classification at Baa3. If the material problems of Eskom and South African Airways persist it is hard to see how the next of its biannual reviews could continue to recommend domestic debt as investment grade. The Rand’s evolving weakness this morning reflects this reality.   

 

 

 

Discussion and Analysis by Charles Porter

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