Eskom has reported an annual loss of R18.9bn for the year ended in March as the utility’s unsustainable debt burden continues to weigh on its finances.
“The single biggest factor preventing Eskom from being financially sustainable is our debt burden,” said CEO André de Ruyter.
The loss comes despite an R81.9bn drop in Eskom’s debt, bringing it down to R401.8bn.
“Some of that is due to government chipping in with support of R56bn but also due to the strengthening of the rand,” De Ruyter said. “But also thanks to some very prudent costs savings.”
While Eskom earned R30bn cash from operations over the year, debt service costs amounted to R35.9bn.
CFO Calib Cassim said: “Cash from operations was well short of what it should be to meet debt service commitments, which is why we needed support from government, so that we could submit our accounts as a going concern.”
While the Treasury and the department of public enterprises have promised for several years that work is under way on a long-term solution for the debt, it has not materialised. The company has been kept afloat since 2019 by annual cash transfers from the Treasury.
Eskom was also hit by the Covid-19 pandemic and the lockdown, which brought sales 6.7% lower. Revenue was up 2% to R204.3bn thanks to an increase in electricity tariffs, which bolstered the top line, augmented by favourable court decisions in challenges Eskom launched against the National Energy Regulator.
Though significant, Eskom’s reported annual loss is less than its previous projection of a R22bn loss.
In terms of cost containment, Eskom managed to keep its primary energy costs under control and to keep coal cost escalation to 6% — the first time it has been in the single digits for a number of years, Cassim noted.
However, Eskom remains unable to collect all the revenue due to it, with municipal arrears debt growing by R7.3bn to R35.3bn. That, Eskom said, was due to little progress being made on intergovernmental interventions in that regard.
The Eskom headcount continues to steadily reduce and was 4.5% lower at 42,749 employees at the end of March, down from 44,772 at the end of the previous financial year. As per agreement with its shareholder, the department of public enterprises, Eskom would not retrench employees, said De Ruyter, but Eskom would reach a more reasonable headcount by 2024 by voluntary severance packages and natural attrition.
The energy availability factor, a metric to measure Eskom’s plant performance, was low at 64.19%, down from 66.64% the year before. Though “disappointing”, De Ruyter urged that it be viewed in the context of a substantial increase in Eskom’s planned maintenance. This has resulted in a “pleasing trend” of reduced unplanned load losses. Even so, and low demand due to the lockdown notwithstanding, load-shedding was implemented on 47 days of the year.
Efforts to unbundle the utility into three stand-alone business units continue in earnest. The transmission entity will be separated by December, with generation and distribution completed a year later. The unbundling of Eskom is a crucial precursor to a competitive energy market with many generators selling to the national grid through an independent transmission company.
The revitalisation of the Renewable Energy Independent Power Producer Programme and the lifting of the licence cap to 100MW for distributed generation by private companies are intended to accelerate this process. Asked whether he was concerned that these developments would cannibalise Eskom’s revenue, De Ruyter said it was the right thing to do from SA’s perspective.
“Hanging on to the monopoly position is not sustainable or in accordance with the roadmap [for Eskom] of the department of public enterprises,” he said.
He stressed the importance of opening up the energy industry to more investments, particularly private sector players, as part of a Just Energy Transition away from fossil fuels.
De Ruyter recently set out a plan whereby Eskom would retire some of its coal assets ahead of schedule to replace them with 7,400MW of new renewable energy. While minister of mineral resources & energy Gwede Mantashe has voiced his opposition to the early retirement of coal, De Ruyter said the Eskom plan was not in conflict with government policy. It was only at one power station — Tutuka, which is performing exceptionally poorly — that Eskom was proposing an early retirement, he said.
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