South Africa’s plan to provide its struggling power utility debt relief and potentially write off municipalities’ arrears to Eskom Holdings SOC Ltd. will ultimately improve liquidity and cut funding risks for the government, according to Moody’s Investors Service.

The proposed 254 billion rand ($13.6 billion) of relief announced in February’s budget is aimed at strengthening Eskom’s balance sheet and covering all interest payments over the next three years, provided it brings in private partners to help operate its plants and the electricity transmission network.

That would free up money for the utility to undertake plant maintenance and improve the transmission and distribution infrastructure as the country battles almost daily electricity rationing.

“If Eskom is able to deliver on the plan, which includes operational efficiency improvement, this would benefit the wider economy, including the sovereign, municipalities, banks and companies,” the ratings company’s analysts, including Benedicte Andries and Aurelien Mali, said in a note on Wednesday.

The proposal is also credit-positive for Eskom because it will strengthen its balance sheet and reduce pressure on cash flow, Moody’s said. “It will also substantially reduce the nonpayment risk on Eskom’s debt over the next three years,” it said.

Eskom has been surviving on state bailouts for years because it can’t bring in enough income to cover its operating costs and service its loans. Acute breakdowns of its poorly maintained coal-fired plants have set back efforts to restore it to profitability and resulted in chronic electricity shortages.

Positive for Banks

Load shedding began in 2008 and has hobbled South Africa’s economy, weakening the rand and adding to inflation. The central bank estimates they shaved 2% off the nation’s economic-growth rate this year.

“Load shedding has caused significant disruption, reduced business confidence and increased labor market uncertainty,” adding to South Africa’s existing problems of structurally weak growth, weak municipal and state-owned company governance and a lack of infrastructure network investment, Moody’s said.

The Eskom and municipal debt relief plan are also likely to have a positive impact on government-owned Development Bank of Southern Africa Ltd. whose exposure to the utility and local governments accounts for more than 50% of its total assets, the ratings company said.

It would also be positive for larger South African banks, though to a lesser extent, as their exposures to the broader public sector sits at around 2% of gross loans and around 14% of shareholders’ equity, according to Moody’s.