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Archive for the tag “Moody’s”

South Africa: Press Ombudsman issues stern rebute to Financial Mail on Eskom (26.04.2017)

Uganda: Civil Society Position on Tax Revenue Measures for FY 2017/18 (21.04.2017)

Report from the MoFPED shows the growing Ugandan debt by June 2016!

Again, the Ministry of Finance, Planning and Economic Development (MoFPED) dropped another report on the fiscal policies and the fiscal health of the economy in Uganda. The National Resistance Movement (NRM) have created this environment as the growing debt and growing interest payment comes with their planned debt rise. Still, the PriceWaterhouseCoopers spelled gloom earlier in the year, as this report was dropped on the MoFPED web page today. Even if the Report was spelled out in December 2016. It is if like the NRM didn’t want this to spelled out early. Since the numbers aren’t compelling of an arts piece, more issues… just take a look!

The stock of total public debt grew from US$ 7.2 billion at the end of June 2015 to US$ 8.4 billion in June 2016. This represents an increase from 30.6% of GDP to 33.8% over the two periods. The increase was largely on account of external debt, which grew from US$ 4.4 billion to US$ 5.2 billion over the period. Domestic debt increased from US$ 2.8 billion to US$ 3.2 billion” (MoFPED, P:V, 2016).

That the debt are growing quick, as the public debt grew with US$ 1.2 billion, that the percentage of GDP went up with 3,2%, the external debt rose with US$ 0.8 billion and the Domestic debt went up US$ 0.4 billion. All of these numbers show the amount of monies that the Government are adding on their debt, as the UNRA and the development projects are suspended by World Bank. So the Infrastructure development can be questioned as the growing debt, as the government must have other uses of the growing and scaled up debt. Since the transparency of the economy isn’t there and that the sanctioned bills comes from the State House. Just look at the growing interest rates as well.

Interest Payment as a percentage of GDP stood at 2.2% as at end June 2016, up from 1.9% as at June 2015. The increase is largely explained by interest payments on domestic debt, which grew from Shs 1,077 billion in FY2014/15 to 1,470 billion in FY2015/16. There was a significant increase in the weighted average interest rate of Government debt; from 5.9% to 6.5% in June 2015/16. This followed increases in the weighted interest rates for both domestic and external debt, from 13.6% to 15.3% for domestic debt and from 0.9% to 1.2% external debt. As interest rates increase, so do the debt service obligations of Government” (MoFPED, P: 4, 2016).

The difference between June 2015 and June 2016 the percentage has grown with 0.3%, the domestic interest rate grew with Shs. 0.393 billion. The Interest rate alone went up by percentage 0.6%, as the weighted interest rates went up 1.7%. The key sentence that the report wrote and I repeat: “As interest rates increase, so do the debt service obligations of Government”.

That idea isn’t only on the interest payment percentages are running higher, but as the debt goes up, the interests goes up. So the Debt Service Obligations are going up for the Government. This is a natural outcome, that the obligations for the state goes up with the amount of debt it rises. So the government can try to portray this is controlled, and to one extent it is under control. Still, the growth in this regard proves that the NRM regime are pilling up debt and increasing their debt, as well as interests. In the end this will make the state worse. Especially knowing that the energy dams have been built poorly and many of the expensive roads haven been fruitful. This is development that the growing debt is being used to…

So the NRM regime and the Ugandan government isn’t believable… the rise of debt and interests show’s the current state of affairs. Even if the percentage is after plan, the government still has to take charge and make sure they can pay back both the debt and interests. Peace.

Reference:

Ministry of Finance, Planning and Economic Development (MoFPED) – ‘DEBT SUSTAINABILITY

ANALYSIS REPORT 2015/16’

Uganda: UPC Calls for Economic Reforms (05.04.2017)

PwC report spells gloom over rising debt in Uganda!

Ugandan shillings

A report released by PricewaterhouseCoopers limited has delivered this month is clearly seeing what others has seen with the economic situation and the use of funds by the National Resistance Movement (NRM) and their regime. This report by a company which is an international company who works with other businesses and civil society organizations who needs economic advice and advisory services for taxes and such; therefore the report from PwC on economic situation is telling. Their speciality on their outlook will be saying with auditors and financial analyst whose words means a lot. They are professional analysts in this field are writing and saying this on the economic climate. The Economic climate is worrying and that has been visible. The liability of the growing debt in the republic has been a hazard together with the lacking internal revenue for the state as well. Just take a look!

Sluggish economy with higher debt:

“This bulletin comes at a very crucial time for the Uganda economy when growth is slowing down, private sector credit is on a decline, consumer demand is low, implementation and execution of critical public infrastructure projects is very sluggish, and the public sector debt burden on the economy is at the highest it has ever been” (PwC, P: 3, 2017). “If the domestic revenues collections continue to underperform, the government will be forced to borrow more from the domestic market. The increase in government borrowing may result in a substantial increase in yields on government securities, which may result in an increase in borrowing rates, which may constrain the private sector credit growth even further” (PwC, P: 7, 2017).

Growing debt:

“The Uganda’s public debt burden has risen by 12.7% in the past four years from 25.9% of GDP in FY 2012/13, to 38.6% of GDP in FY 2016/17. The debt burden is projected to continue rising to 45% of GDP by 2020. Debt as a percentage of revenues has risen by 54% since 2012 and is expected to exceed 250% by 2018. The country’s ever increasing debt burden has resulted in a deterioration of the debt affordability situation” (PwC, P: 8, 2017). “Uganda’s capital expenditures are still too reliant on external finance. Currently debt servicing constitutes 11% of the total government expenditure, one of the highest debt burdens in sub-Saharan Africa. This is expected to increase to 16% of the total government expenditure by 2018. Uganda’s debt burden has risen faster than the government’s own resources, resulting in a debt-to-revenue ratio of 236%, one of the highest amongst B-rated countries. This has prompted Moody’s recent down grade of Uganda’s long-term bond rating by one notch to B2 from B1” (PwC, P: 8, 2017).

An Economy with challenges:

“2016 was an economically difficult year for Uganda. The economy faced numerous challenges due to the continued uncertainty surrounding the recovery in global economic growth, weak commodity prices and geopolitical events in our key trading partners. As a result, of these numerous challenges, our export earnings, FDI flows and remittances to Uganda all went down. These developments, together with a slowdown in the execution of public investment projects and weaker than expected private sector demand, had a major effect on the economy” (…) “Other internal risks include delays in the implementation of public infrastructure projects such as the Standard Gauge Railway (SGR) linking Uganda to its East African neighbours, and the key infrastructure projects critical for the commencement of oil production” (PwC, P: 4-5, 2017).

If you are worried by the Republic and their economy after this, than you haven’t followed the class since this signs have been there for while! The state of the economy is fragile and the debt rise should concern all the ones inside the Republic and also outside. However, this could change, but that has to be done by the government and steer in another direction as today. The greed and the common sense of developing the economy is forgotten, as they are fixated on infrastructure projects and oil developments, while borrowing to fill the losses of donor-aid and internal revenue. This could be done in many ways, but that would not be easy. Peace.

Reference:

PricewaterhouseCoopers Limited (PwC) – ‘Uganda Economic Outlook 2017’ (February 2017)

Finally released Dentons report on South Africa Eskom’s performance is revealing of malpractice in the state-owned energy company!

eskom-data

A long-time delayed report have been released this week, as the South African ruling party African National Congress (ANC) and their ministers has tried to subdue the private analysis of the government energy company ESKOM. However, this report will assess needed information that should have been delivered before the other leaks of questionable transactions and contracts that Eskom has done in the recent years under President Jacob Zuma. President Zuma has used his presidency to earn monies for his family members and even some of his family work in corporations that have gotten state contracts through Eskom. Therefore this report is telling of how the sufficient business-model and energy production has been handled by Eskom. This will be about the years before 2015 and to that date. What Eskom has done since has either been revealed through the contracts or through the scrutiny of Public Protector or Finance Minister who has questioned the company themselves. Just take a look at what I find as key things from this report!

“Prior to 1997, Eskom plant operated at relatively low energy utilisation factors (EUF). However, from the onset of Eskom 90:7:3 operational strategy in the mid-90s, the Eskom plant operated at higher EUFs. After 2012, the plant operational at very high EUFs with the median being in excess of 90%” (Dentons, P: 19, 2015).

About the lacking investment in older plants:

“The Generation Sustainability Strategy document cited information that Eskom has reduced planned maintenance (reflected in the Planned Capability Loss Factor (PCLF)) in order to maintain “Keeping Lights On (KLO)” strategy. It could be noted that the historical 90:7:3 strategy applied by Eskom should also be factored in the assessment of the fleet performance as international practice typically targets values in the order of 85:10:5” (…) “The historically low PCLF coupled with the KLO strategy and factors such as coal quality and high utilisation factors have led to a sharp increase in Unplanned Capabilities Loss Factors (UCLF)” (Dentons, P: 19, 2015). “The Generation Sustainability Strategy document indicates that the Eskom generation fleet has experienced 15 years of under-investment in capital expenditure (capex) which is largely the result of cost cutting due to financial and capacity constraints” (Dentons, P: 20, 2015). “The analysis of this information indicates that there was significant under-investment refurbishment capex versus best practice for an extended period of time (from the mid 1990s). The under-investment at plant mid-life age is also critical and significantly contributes to the current poor plant performance” (Dentons, P: 22, 2015).

2010 Football World Cup:

“To uphold the KLO Strategy, short term decisions were made by Eskom that negatively impacted on the long-term sustainability of the generation plant. Historically, this would include the impacts of maximising plant availability during the critical period in 2010 prior to and including the FIFA 2010 World Cup. The knock-on effects of deferring maintenance may not be immediately materialised and often manifest themselves later in the generation planning/production cycle. As an example, the available documentation indicates that in January 2013, five previous maintenance outages were not executed as scheduled as sufficient generation capacity was not available on the grid. The lack of generation reserves has also resulted in units operating outside limits of good practice. As an example, in June 2014, 46 out of the 79 coal units were operating outside of good practice” (Dentons, P:27, 2015).

eiug_load-shedding-infographic_20141015_ethekwini_lr_2-01

Load Shedding:

“Load Shedding is the reduction of demand to achieve a balance between available generation and demand. If demand significantly exceeds available generation and reduction in demand is not achieved, the system will frequently drop, which may ultimately result in a system black-out” (…) “The problem Eskom faces is a steady decline in the performance and availability of its coal fleet. The further leads to a lack of ‘space’ to execute the maintenance required to restore the condition of the coal-fired power stations so as to achieve acceptable operating performance. This has been compounded by the delays in bringing on new capacity such as Mepudi, Kusile and Ingula” (Dentos, P: 30, 2015).

Skills to execute new build projects:

“When the decision to proceed with the new build projects was made, Eskom had limited skills to conduct such a project. Eskom has not developed coal power plants for decades. Experienced power plant staff (mostly operational staff) were moved to new build programme which left substantial skills gaps at the operating power stations” (Dentons, P: 38, 2015).

Delayed Projects:

“One of the measures taken by Eskom to bolster knowledge and experience was to recruit experienced resources internationally to increase the skills base. Eskom recently announced revised timelines for the Medupi and Kusile indicating that these projects will be further delayed and are now only planned completion by 2020 for Medupi and 2022 for Kusile. These appear to be more realistic time frames given the current status, but there remains general scepticism as to whether Eskom will be able to achieve this given its past track record on contract management for these projects” (Dentons, P: 42, 2015).

Debt made by Eskom:

“New debt of R49.5bn was taken on in the year to fund the continued capex programme. However, Eskom was downgraded to sub-investment grade status by both Moody’s and S&P and thus the funding was provided at much higher finance cost. Liquidity concerns were heightened as the net cash flow from operating activities of R23.3bn was not sufficient to cover the total of debt due for repayment of R17.1bn as well as the net financing interest payable of R15.3bn resulting in a shortfall of R11bn. In essence borrowings were starting to be used for ongoing operations” (Dentons, P: 89, 2015). “Eskom Treasury recently highlighted the key risks that Eskom faces to execute the borrowing programme, and in turn therefore complete the new builds: realisation of BPP cost savings; cost overturns on Medpudi and Kusile; RCA cost recovery in MYPD3 future years; Declining future ratios; threat of future ratios; threat of further credit rating downgrades; inadequate liquidity buffer; Lack of market appetite for Eskom debt; and inability to execute borrowing programme. In FY2015, all of these risk materialised” (Dentons, P: 94, 2015). “Recent history does not place these risks in a good light. Eskom is currently sacrificing its future to survive. If sales and arrears continue to plague Eskom, there is a shortfall in lending, a failure to meet meaningful cost savings, and a continued EAF below 80% prevail (in other words a continuation of the trend of the past 2 years), Eskom’s bail-out funds will evaporate” (Dentons, P: 95, 2015).

medupi-power-plant

That this report is damaging to the reputation of Eskom. This shows the malpractice and lacking of guidance that the company has had. The monopoly and grand control over the market as the state corporation has given it kickbacks and security of funds, even as they haven’t done things properly or planned. Therefore the enlightenment and the clear indication of lose planning and less of experts on the field of building new power-plants is proof of the misguided and maladministration that’s been inside the Eskom company.

The African National Congress that has been the ruling regime and the ruling party, that has been in-charge of the resources and the selection of hiring and changing leaders of the company. Can be put to blame for lenient and lacking acts of putting in place enough expertise and enough clear procedures on how the changing leadership should go about. So the Eskom could be sure of having men and woman who we’re qualified and had experience to handle an organization and business like this.

The report highlights major facts and breaches in also ordinary buying procedures and lacking of that and other issues that I couldn’t fit. There are many lose ends that Eskom has and needs to address, that ANC has to take responsibility for and also answer for. Because the Company has dwindled and lost its edge during the reign of ANC and President Zuma, who rather spoils the company instead of investing in it! Peace.

Reference:

Dentons – ‘Report on Eskom’ (02.07.2015)

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