South Africa's Eskom to tap global markets with "a lot of sukuks"

JOHANNESBURG (Reuters) - South African power firm Eskom will issue Islamic bonds or sukuks in international markets its acting chief executive said on Tuesday, as the cash-strapped utility sought a tariff increase. Eskom, whose credit-rating was downgraded to junk in March by Standard & Poor's is battling to keep the lights on in Africa's most advanced economy where it is the main supplier. Speaking at a public hearing held by the National Energy Regulator of South Africa (NERSA), acting CEO Brian Molefe said the utility will be approaching international bond markets with sukuks and other debt instruments. "We will go to the international markets, there is a lot of sukuks that we will explore as well as private placements," Molefe said. Molefe also said the utility had reduced its price hike request to 9.5 percent from 12.7 percent, foregoing a 2.51 percent environmental levy because the National Treasury might not pass it into law in time. Eskom, which is facing its worst power shortages, was granted 12.7 percent tariff hike in April and its latest request, if granted, would take prices increases to a total of more than 22 percent. The tariff hikes would be implemented next year, according to a circular issued by the National Treasury. The increases were initially scheduled to be take effect from July 1 this year, according to Eskom. The Ferro-Alloy Producers Association of South Africa told the hearing that price increases could force a closure and divestment of some smelters and possibly lead to as much as 200,000 job losses in the sector. "The increase in electricity prices will further increase production costs and lead to the closure of most smelters in South Africa," said Jacobus Zaayman, a representative from the Ferro-Alloys Producers Association at the public hearing. Zaayman said higher prices could force some companies to move their smelters to China, whose electricity costs would be cheaper than South Africa if price hike were implemented.