S&P rates Eskom A-

Standard & Poor's said it kept the A- local-currency and BBB+ foreign-currency long-term corporate credit ratings on Eskom Holdings Ltd. on CreditWatch with negative implications.

Ratings were placed on CreditWatch on Jan. 11 after a material increase in the company's capital expenditure program, in light of the tightening capacity margin in South Africa and due to significant inflationary pressures, primarily on fuel prices and capital equipment, the agency said.

National Energy Regulator of South Africa said it would allow Eskom to increase the average tariff in 2008/2009 to 27.5% from 14.2%, with expectations of annual increases of 20% to 30% over the following three years, according to the agency. The increase forms only one component of the overall funding plan for the ZAR 343 billion capital expenditure program over the next five years, S&P noted.

Ratings reflect the company's critical role in the development of South Africa's economy through its successful electrification program, strong electricity demand growth and a more supportive regulatory regime following the introduction of multiyear price reviews, the agency said.

These strengths are offset by a substantial capital expenditure program to increase generation capacity, an already leveraged balance sheet on a gross debt basis and the potential restructuring of the power industry in the longer term, S&P noted.

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