Power utility Eskom reported a loss of R12.3bn for the year to end-March 2022, its fifth successive annual deficit.
Despite achieving an increase in operating profit for the 2022 financial year, and managing an overall reduction in gross debt of R5.5bn (1%), the strain of high debt servicing costs and an escalation in arrear debt from non-paying municipalities means Eskom will remain reliant on bailouts from Treasury.
The results for the 2022 financial year were published on Friday, about three months after the statutory end of September deadline after being delayed by the appointment of new external auditors due to late completion of the previous financial year’s audit.
Briefing the media on the state-owned power group’s financials, Eskom CEO André de Ruyter said the debt burden of about R396bn continues to weigh on its performance.
“Before we take into account the cost of servicing our debt, operating profit was up a very healthy 238% [to R20.4bn]. If we had a more normalised debt burden ... Eskom could have been profitable if we did not have to pay out these extraordinary amounts on capital as well as interest to service our debt burden,” De Ruyter said.
According to its financial statements, Eskom’s net finance costs were the second-largest cost after primary energy and increased 6% in 2022 mainly due to lower capitalisation as well as a higher average cost of borrowing, despite a slightly lower debt balance.
Without support from the Treasury the utility would have faced a debt service gap of about R20bn in 2022.
Restated results for the year to end-March 2021 showed the annual loss rising from R18.9bn to a record R25bn.
The utility posted losses of R20.8bn in 2020, R21bn in 2019, R2.3bn in 2018 and a profit of R900m in 2017.
It forecast a net loss of R20bn for the year to end-March 2023 due to a fall in sales, higher spending on maintenance and increased spending on diesel to compensate for the poor performance of its coal-fired generation fleet.
In addition to high debt-servicing costs, debt owed by municipalities hampered Eskom’s financial performance.
Since 2018, Eskom’s municipal debt arrears rose from R4.2bn to almost R45bn in 2022.
The continuing increase in arrear municipal debt was “a matter of grave concern”, De Ruyter said.
According to Eskom CFO Calib Cassim arrear municipal debt was forecast to increase to R56bn in the 2023 financial year.
“Eskom cannot continue to carry a R10bn increase per annum in municipal debt,” he said.
De Ruyter and Cassim said Eskom was not able to service the capital and interest costs to repay its debt on its own, and it was “absolutely critical” to receive financial support from the fiscus to enable the utility to continue to be a going concern.
Eskom was under a legal obligation, said De Ruyter, confirmed by a recent verdict issued by the Constitutional Court, compelling it to continue supplying non-paying municipalities with power.
“We have respect for the court’s judgment, and we intend to abide by it, but it does beg the question, who will service the debt? It also creates enormous moral hazard for municipalities who are in many instances very poorly governed and who have displayed little intent to commence paying their debt.”
Cassim said that other than municipal and residential arrear debt (such as the R4.6bn owed by power users in Soweto), only two large customers owe amounts in excess of R100m, namely Transnet (R437m) and the state-owned energy company of Mozambique (R579m, of which R350m is in dispute).
The National Treasury indicated, during the tabling of the medium-term budget policy statement in parliament in October, that it may shift as much as two-thirds of Eskom’s debt to its own balance sheet, with strict conditions. An announcement in this regard will be made when the minister of finance tables the national budget in 2023.
Cassim said Eskom’s biggest financial challenges remain the lack of cost-reflective tariffs, excessive use of diesel-powered open-cycle gas turbines due to the poor operational performance of the coal-fleet, and arrear municipal debt.
Eskom’s plant performance has deteriorated alarming with the energy availability factor (EAF), a measure of electricity output as a share of total installed generation capacity, falling from 77% in 2018 to about 60% in 2022.
More recently, with the worst power cuts in Eskom’s history, the EAF has often fallen as low as 50%, indicating that only about half of the generation fleet was operational at times.
The utility also continues to be plagued by leadership instability. De Ruyter announced his resignation on December 14, making him the ninth person to resign from the job in nine years.
Eskom is waiting for the National Energy Regulator of SA (Nersa) to announce a decision on its allowable revenue application for 2023 and 2024. After revising its tariff application for 2023/2024 and 2024/2025, which was part of Eskom’s fifth multiyear price determination (MYPD5), originally submitted in June 2021 — Eskom is seeking annual standard tariff increases of about 32% in 2023 and 9% in 2024.
Nersa was recently granted a second extension to make a final decision on the revenue application with the deadline now set for January 12.
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