The cost of repairs at Kusile power station’s units 1, 2 and 3 now stands at R700m.
In a presentation of Eskom’s annual results on Tuesday, head of generation Bheki Nxumalo said the final cost of repairing the flue gas desulphurisation (FGD) duct that collapsed in October 2022 due to ash build-up inside the pipe is yet to be determined.
However, the cost to erect temporary stacks to bypass the FGD unit — which has allowed Eskom to return the affected generation units to service more than 12 months sooner than the permanent fix would have taken — and the preliminary assessment of repairs needed on the FGD unit now stands at R700m.
Earlier in 2023, Eskom said money spent on the temporary fix amounted to R250m at the time, but it did indicate the costs were likely to increase as the project progressed.
In October 2022 the 9m diameter FGD duct, which carries emissions from unit 1 into a large chimney, collapsed. The chimney also houses the flue gas ducts for units 2 and 3.
This resulted in a 12-month shutdown of these units. The loss of their combined generation capacity of about 2,400MW was a major contributor to the escalation in load-shedding over the past 12 months.
Due to a record 280 days of load-shedding, Eskom’s energy sales fell 5% while spending on diesel to run open-cycle gas turbines (OCGT) rose 50% for the year to March 31.
These were some of the main factors driving Eskom’s net loss after tax to R24bn, up from R12bn in the previous year.
At the results presentation acting CEO Calib Cassim said the number of load-shedding days in the year increased more than fourfold compared with 65 days in the previous year.
Despite some of the R254bn in debt relief to Eskom announced by the Treasury in February starting to flow to the utility, its total debt increased from R396bn in the 2022 financial year to R423bn in 2023.
Load-shedding put pressure on the cost of production, especially in running the OCGTs, “which come at an enormous extra cost” of almost R30bn and which “filtered through the financial performance”.
The cost of energy produced by the OCGTs also rose about 50% in terms of unit costs due to an increase of almost 30% in the cost of diesel over the period.
Cassim expects to start seeing a turnaround in Eskom’s financials by 2025. “It is critical that Eskom’s performance does change. We are confident we will turn around the operational performance and we believe financials will then improve by end-March 2025.”
Despite recent improvements in generation performance, financial performance in the current (2024) year will continue to be negatively affected by load-shedding, which would again result in a decrease in energy sales and an increase in costs as Eskom continues to rely heavily on OCGTs to maintain load-shedding at lower stages.
Eskom has implemented an 18.6% tariff increase for the current year but expects sales for 2024 to shrink a further 2%, said Cassim.
Biggest cost
“Our biggest financial challenges remain the lack of cost-reflective tariffs, excessive use of OCGTs due to capacity shortages, inflationary cost increases, nonpayment from customers and Eskom’s debt burden.”
Acting CFO Martin Buys said Eskom will not be looking for further bailouts.
With the inflow of debt relief payments from the Treasury over the next three years, gross debt is expected to be reduced about 40% over the next five years to R270bn. “The trick will then be to make sure we maintain it at that level,” Buys said.
The R254bn debt relief from the Treasury will be paid over three years, with R78bn in the first year, R66bn in the second and R40bn in the third year. The Treasury will also take over R70bn in Eskom debt, including future interest payments associated with this debt, which means it will not result in a R70bn reduction of debt on Eskom’s balance sheet.
While the debt relief package will not be sufficient to cover all Eskom’s debt, the reduction in total debt should place Eskom in a better position to be able to service all interest and repayment obligations.
In the year to end-March 2023, Eskom’s cash flows remained inadequate to meet debt servicing requirements.
An important advantage of the debt relief is that Eskom’s improved liquidity position would make it possible to plan for maintenance and outages on plants in advance.
“For big stations, we have to place orders for parts a couple of years in advance. Because we can now support our debt servicing cost, we can start placing lead orders long in advance,” Buys said.
Spending on maintenance and repairs rose R3bn in the year to end-March 31.
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