The recent improved performance of Eskom’s coal-fired generation fleet and the effect of its R254bn bailout that was announced by the Treasury in February will only really start to show in the utility’s financial performance by 2025.
Even then, a lot still needs to be fixed over the next 12 to 18 months if financials are to improve.
Eskom’s results for the year to end-March show the debilitating signs of its massive debt pile and a record 280 days of load-shedding.
Year-on-year debt increased from R396bn to R423bn, net losses after taxes doubled to R24bn, the performance of its generation fleet worsened from an energy availability factor (EAF) — actual generation performance as a share of total installed capacity — of 62% to about 56%, and its debt-ebitda ratio worsened from about 8.5% to 12.6%. With the shadow still being cast by legacy financial reporting irregularities this all makes for a set of truly depressing financial results.
Despite money now flowing from the three-year debt relief programme, the year to end-March 2024 may be even worse unless there is a dramatic turnaround in power station performance in the next five months.
Already there have been 202 load-shedding days in the current year and Eskom anticipates that its electricity sales will decline 2% more this year, after declining 5% in 2023.
In five years, thanks to the government bailout and the condition that Eskom is to take on no new debt during the debt relief period, the utility expects its debt to have reduced by 40% to R270bn.
But, as the acting CFO Martin Buys said, “the trick will then be to make sure we maintain it at that level”.
There are uncertainties aplenty along the way.
For one thing, Eskom is placing a lot of faith in the municipal debt relief programme through which municipalities that owe Eskom money can have their debt arrears written off over the next three years.
Arrear municipal debt, one of the greatest risks to the success of R254bn bailout and drivers of Eskom’s financial losses, escalated from R45bn in 2022 to R58.5bn in 2023. It has already increased further to R64bn in the current year, with five more months to go.
Eskom head of distribution Monde Bala said at the results presentation that 67 municipalities representing 95% of arrear debt owed to Eskom have applied for the debt relief. But only 28 of those applications, representing 42% of the debt owed, have so far been approved. The deadline for applications was Tuesday.
Eskom will have to take the financial hit of these debt write-offs, but the benefit to the utility, Bala said, is that those municipalities that do participate will have to keep up to date with their current accounts, which should improve cash flow.
It is early days, but so far the level of adherence of those municipalities that are already participating in the programme has improved.
But the question remains whether municipalities that have been delinquent payers in the past will change their ways, and whether the 39 municipalities that have not yet been approved for the debt write-off will make it over the line.
Glaring uncertainty
The private sector has been highly sceptical of the municipal debt relief programme, arguing that writing off arrear debt will do nothing to change the fundamental problems, such as poor and inept governance, that got them into debt in the first place.
Another glaring uncertainty is the assumption that generation performance will continue to improve according to plan.
The net loss Eskom recorded in 2023 can almost entirely be ascribed to the direct cost of load-shedding in terms of the reduction in energy sales and the increase in expenditure on the emergency power produced by the diesel-fired open cycle gas turbines.
Eskom head of generation Bheki Nxumalo and his team have been valiant in their efforts to implement the generation recovery plan according to which the EAF must improve to an average of 60% by end-March 2023 and 65% by end-March 2025.
After the early return of two of the units at Kusile that have been offline since October last year, the EAF is finally starting to improve above the 60% mark, but the long-neglected coal-fired fleet remains unpredictable.
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