Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees?
The South African government offers various support mechanisms to support Eskom, the state-owned electric utility, and the independent power producers in providing low-cost electricity, including credit and payment guarantees. Guarantees constitute...
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/162801547570854145/Managing-South-Africas-Exposure-to-Eskom-How-to-Evaluate-the-Credit-Risk-from-the-Sovereign-Guarantees http://hdl.handle.net/10986/31171 |
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okr-10986-311712022-09-17T12:16:48Z Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? Bachmair, Fritz Florian Aslan, Cigdem Maseko, Mkhulu CREDIT RISK RISK MANAGEMENT CONTINGENT LIABILITIES SOVEREIGN DEBT EXPORT CREDIT INSURANCE FISCAL LIABILITY ELECTRIC UTILITIES PRIVATE UTILITY The South African government offers various support mechanisms to support Eskom, the state-owned electric utility, and the independent power producers in providing low-cost electricity, including credit and payment guarantees. Guarantees constitute contingent liabilities to the government and pose risks to government finances. This note illustrates the methodologies explored by South Africa to assess the credit risk from guarantees extended to Eskom. To manage and closely monitor this risk, a dedicated Credit Risk directorate in the Asset and Liability Management division at the National Treasury of South Africa has implemented a risk assessment and management framework, supported by the World Bank Treasury. The team developed a sector-specific internal credit rating methodology to assess Eskom's creditworthiness. Additionally, the team developed a scenario analysis methodology to assess Eskom's ability to service debt from cash flows and cash reserves. The scenario analysis tool is currently used on an ad hoc basis to feed into the various scenarios that are considered for the budget process. Risk assessments are reported to the Fiscal Liabilities Committee on a quarterly basis for risk monitoring and to support recommendations for taking on new contingent liabilities, such as government guarantees. The Fiscal Liabilities Committee advises the minister of finance and is responsible for the determination of the processes and policies for approving guarantees and guarantee-like transactions. The Fiscal Liabilities Committee is generally mandated to promote the optimum management of the government's contingent liabilities, including guarantees. The implementation of further risk mitigation and monitoring tools, such as risk-based guarantee fees, budget allocations, and a contingency reserve account, is under discussion. 2019-01-31T18:52:42Z 2019-01-31T18:52:42Z 2019-01 Working Paper http://documents.worldbank.org/curated/en/162801547570854145/Managing-South-Africas-Exposure-to-Eskom-How-to-Evaluate-the-Credit-Risk-from-the-Sovereign-Guarantees http://hdl.handle.net/10986/31171 English Policy Research Working Paper;No. 8703 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa South Africa |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
CREDIT RISK RISK MANAGEMENT CONTINGENT LIABILITIES SOVEREIGN DEBT EXPORT CREDIT INSURANCE FISCAL LIABILITY ELECTRIC UTILITIES PRIVATE UTILITY |
| spellingShingle |
CREDIT RISK RISK MANAGEMENT CONTINGENT LIABILITIES SOVEREIGN DEBT EXPORT CREDIT INSURANCE FISCAL LIABILITY ELECTRIC UTILITIES PRIVATE UTILITY Bachmair, Fritz Florian Aslan, Cigdem Maseko, Mkhulu Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? |
| geographic_facet |
Africa South Africa |
| relation |
Policy Research Working Paper;No. 8703 |
| description |
The South African government offers
various support mechanisms to support Eskom, the state-owned
electric utility, and the independent power producers in
providing low-cost electricity, including credit and payment
guarantees. Guarantees constitute contingent liabilities to
the government and pose risks to government finances. This
note illustrates the methodologies explored by South Africa
to assess the credit risk from guarantees extended to Eskom.
To manage and closely monitor this risk, a dedicated Credit
Risk directorate in the Asset and Liability Management
division at the National Treasury of South Africa has
implemented a risk assessment and management framework,
supported by the World Bank Treasury. The team developed a
sector-specific internal credit rating methodology to assess
Eskom's creditworthiness. Additionally, the team
developed a scenario analysis methodology to assess
Eskom's ability to service debt from cash flows and
cash reserves. The scenario analysis tool is currently used
on an ad hoc basis to feed into the various scenarios that
are considered for the budget process. Risk assessments are
reported to the Fiscal Liabilities Committee on a quarterly
basis for risk monitoring and to support recommendations for
taking on new contingent liabilities, such as government
guarantees. The Fiscal Liabilities Committee advises the
minister of finance and is responsible for the determination
of the processes and policies for approving guarantees and
guarantee-like transactions. The Fiscal Liabilities
Committee is generally mandated to promote the optimum
management of the government's contingent liabilities,
including guarantees. The implementation of further risk
mitigation and monitoring tools, such as risk-based
guarantee fees, budget allocations, and a contingency
reserve account, is under discussion. |
| format |
Working Paper |
| author |
Bachmair, Fritz Florian Aslan, Cigdem Maseko, Mkhulu |
| author_facet |
Bachmair, Fritz Florian Aslan, Cigdem Maseko, Mkhulu |
| author_sort |
Bachmair, Fritz Florian |
| title |
Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? |
| title_short |
Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? |
| title_full |
Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? |
| title_fullStr |
Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? |
| title_full_unstemmed |
Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? |
| title_sort |
managing south africa's exposure to eskom : how to evaluate the credit risk from the sovereign guarantees? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2019 |
| url |
http://documents.worldbank.org/curated/en/162801547570854145/Managing-South-Africas-Exposure-to-Eskom-How-to-Evaluate-the-Credit-Risk-from-the-Sovereign-Guarantees http://hdl.handle.net/10986/31171 |
| _version_ |
1764473706108682240 |