Eskom, which recorded another multibillion-rand loss for the 2020 financial year, would not be a going concern were it not for the government’s substantial support.
The embattled utility on Friday reported a net loss of R20.5bn for the year ended in March 2020, after a record R20.9bn loss in the previous year.
Eskom’s auditors have raised a material uncertainty over whether the business is a going concern — defined as able to meet financial obligations when they fall due.
CFO Calib Cassim, however, said the directors in their report have signed off that the utility remains a going concern, though only because “of the explicit support that government has granted us in the equity support of R49bn, R56bn for the current financial year and another R33bn for the year thereafter”.
Though Eskom is working to control its own costs and has seen revenue bump up to R200bn as a result of higher electricity tariffs, its debt burden is ever more unsustainable, having grown to R484bn by March 2020.
Income generated from operations is simply not enough to cover the debt service costs, said Cassim.
Debt servicing costs of R71bn for the 2020 financial year would have been R29bn short were it not for government support.
And the cost of servicing the debt is expected to ramp up. In the 2021 financial year the cost is expected to total R95.3bn, and over the next five years will amount to more than R340bn.
The government has made it clear that the utility cannot ask for more money, but Eskom’s future sustainability requires that its long-standing debt conundrum be solved.
Speaking at Friday’s results presentation, public enterprises minister Pravin Gordhan said “something extraordinary needs to be done in restructuring the debt or managing the debt differently”.
Cassim indicated that a debt level of about R200bn would be manageable for the utility.
Gordhan said the first round of work was done earlier in the year to examine various debt options. Those remain on the table and a second round of initiatives will be launched this week.
Gordhan declined to give any detail on what options were under consideration at the moment and promised to update stakeholders in a month or so. “What we do want to communicate is that the issue is being attended to as we move forward,” he said.
Eskom CEO André de Ruyter emphasised that Eskom does not intend to restructure the debt, a phrase that tends to alarm lenders. “We will honour our debt obligations as and when they fall due, but as our debt matures there is an opportunity to refinance the debt using cheaper and more advantageous financing for Eskom.”
De Ruyter has previously said the utility could look to tap green funds from global development financiers as one solution to ease its debt burden.
At the results presentation he said that after Eskom’s engagements with the market there appears to be about R200bn in green financing potentially available.
De Ruyter said a cost-reflective electricity tariff would go a long way to reducing Eskom’s reliance on the fiscus.
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