Eskom is losing R500 million every month: CFO

Eskom is losing R500 million every month, and will lose R2 billion for every 1% it does not get in its requested price hikes.

These are just some of the worrying numbers revealed in an interview with the power utility’s new chief financial officer, Calib Cassim, who laid out how much trouble the company is in.

The interview, conducted by EE Publisher’s editor and energy expert Chris Yelland, covered Eskom’s financial issues, as well as Cassim’s views on president Cyril Ramaphosa’s plans to split the company.

While Cassim support’s the president’s unbundling plan, it is not the silver bullet or panacea that will resolve the company’s issues, which include a ‘calamitous’ debt problem where it owes over R400 billion, a culture of non-payment among municipalities, and conflict with unions over jobs cuts.

“If (Eskom) goes down, we bring down the sovereign and the economy,” he said. “(Ramaphosa) used the words ‘financial crisis’ in his state-of-the-nation address, and this is the best way to describe where we are, hand-in-hand with our operational challenges.”

Cassim highlighted several major issues:

  • Ramaphosa’s unbundling plan won’t be cheap . The costs have not yet been determined.
  • The company’s generation performance is what led to the group’s loss extending from R15 billion to R20 billion. The projected R19.7 billion loss for 2019/20 will be reduced by R7.81 billion thanks to the 4.41% RCA clawback already granted by Nersa, however.
  • On tariffs, Eskom needs R200 billion in revenue per year – it will lose R2 billion for every 1% not granted by Nersa in its tariff hike application. Eskom wants a 17.1% tariff hike in 2019, 15.4% in 2020 and 15.5 % in 2021.
  • Unless Eskom can make more money through sales (from higher tariffs), even if it gets another R100 billion bailout from government, it will just get wiped out by debt servicing. “We’re using one credit card to pay back the other credit card,” Cassim said.
  • Government has said it will commit funds to Eskom, but has not yet given an indication of how much. This will come in the budget speech next week.
  • Municipal debt is mounting. It’s currently at R18 billion, growing by R450 million a month. Soweto debt is at R17 billion, growing at R50 million a month. Combined, Eskom is losing R500 million a month from municipal arrears.
  • Eskom spends R55 billion a year on coal – but staff costs are extremely high and Eskom needs to address this.

Job cuts must happen

Eskom has an established conflict with unions over its staff complement, with groups such as the National Union of Mineworkers (NUM) and the National Union of Metalworkers of South Africa (Numsa) fighting against the power utility’s moves to reduce its bloated and costly workforce over the past few years.

In 2018, Eskom first tabled a proposal to reduce its staff contingent by 15,000 people, which later became 7,000 through “natural attrition”. However, this plan was quickly shut down by unions.

Eskom chairman Jabu Mabuza said the company has “33% more people than was necessary”, echoing analysts and energy experts who say the group is grossly overstaffed.

Energy expert Ted Blom, said that Eskom is overstaffed by as many as 30,000 employees, with the utility only needing 14,000 to operate, while currently employing close to 48,000 people. The 30,000 Eskom workers are also four times over-paid compared to global averages, he said.

When Eskom tried to reduce staff costs by offering a 0% wage increase in 2018, the unions again pushed back, with workers sabotaging infrastructure, leading to power outages across the country. Workers eventually got a 7.5% increase.

According to Cassim, Eskom has no choice but to cut jobs.

“With regard to staff costs, we acknowledge that we have to address this. We’ve started by giving no bonuses or salary increases to senior managers, while for middle-managers there was just an inflationary salary adjustment with no bonuses,” he said.

In terms of the staff complement, he said: “We need to look to reduce this over the next three to five years to come in line with an efficient base.”

“We will have to engage with the (union) leaderships to ensure they understand the situation, and that we all have to contribute in taking some of the pain to balance this equation.”

Unions, meanwhile, have announced plans to launch strike action against Ramaphosa’s plans to unbundle Eskom. Numsa says that it’s an attempt to privatise the power utility “through the back door”. It said it will take action against the move because it will lead to job losses and higher prices.

The union said that Eskom’s unbundling will lead to 50,000 jobs being lost.

Read: Eskom CEO sees debt swap as best option for rescue

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Eskom is losing R500 million every month: CFO