Reporting months after the legislated deadline, Eskom on Thursday reported an eye-watering R55bn loss and qualified audit-outcome for the financial year ended 31 March 2024.
This is more than double the previous year’s R26bn loss but includes a tax write-back of a deferred tax asset of R36.6bn. The write-back is related to the unbundling of the profitable transmission division into an independent subsidiary, the National Transmission Company of SA (NTCSA). This is an accounting matter and does not reflect cash flow.
On a pretax basis the utility reduced its R34.5bn loss in the previous financial year to R24.5bn.
That 2023/24 was a year Eskom would like to forget, is clearly reflected in the financials. Despite an 18% increase in tariffs, its revenue increase was limited to 14% as 329 days of load-shedding and customers pivoting to self-generation cut its sales by 3%.
In addition, Eskom’s intense usage of open-cycle gas turbines cost it R34bn in diesel purchases, an increase of R4bn.
Eskom’s debt reduction did not reflect the full benefit of the government’s R254bn debt relief package, R76bn of which was dispersed during the period. It came down from R424bn at the beginning of the financial year to R412bn at the end.
Group CEO Dan Marokane emphasised that the group’s performance during the first half of the current financial year shows that its fortunes have improved.
Latest projections are that the utility will record a R10bn profit for this financial year.
Peter Attard Montalto, head of political economy, markets and the just energy transition at the consultancy Krutham says overall the results were roughly as expected. He describes Eskom’s guidance of a small profit in the current financial year as “aggressive but not outrageous”. Krutham expects Eskom to break even.
Attard Montalto said Eskom’s warning that cost-reflective tariffs and a solution to municipal debt, which it expects to rise to R110bn by the end of March, were crucial to the future of Eskom.
The National Energy Regulator of SA is now considering Eskom’s application for a 36% tariff increase next year, 12% in the following year and 9% in 2027. It was expected to announce its decision on December 20, but this may be delayed until January.
The results show a positive pathway, but it will only work with the requested tariff path and solving the municipal debt problem.
— Peter Attard Montalto, head of political economy, markets and the just energy transition at Krutham
“The results show a positive pathway, but it will only work with the requested tariff path and solving the municipal debt problem,” Attard Montalto says. He is however sceptical.
“Neither of these things is going to happen while demand will also probably end up being lower than expected.
“The only way of squaring this unless we want to have a huge cuts in capex, is for additional bailouts in the coming years.”
In addition to the bad numbers, Eskom also reported repeated findings about a lack of internal controls, incomplete financial records and inadequate responses to previous years’ audit qualifications.
The auditors expressed material uncertainty about Eskom’s ability to continue as a going concern and identified seven reportable irregularities.
Marokane said Eskom had discovered a sophisticated scheme in which some of its staff were colluding with outside players to use the utility’s online vending system to generate fraudulent vouchers.
It came to light during a forensic investigation into leakages in the distribution business and further investigation is still ongoing. Because Eskom does not know how many of these tokens are still in circulation, it is unable to estimate what its obligations in this regard could amount to. This was one of the factors that delayed the finalisation of the financial statements.
He told Business Day that local procurement at power station level was where much of the documentation went missing. The system had since been changed to ensure station managers were copied in everything and subsequently another level of authorisation has been added.
“We are going to turn this business upside down to ensure we adhere to controls,” he said.
Eskom estimates that electricity theft cost it R23bn in the reporting period.
According to Marokane the unbundling of the group also resulted in some control gaps as the policies and rules were not immediately updated to match the new organisational structure.
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