Eskom expects R20 billion loss by year-end

Embattled state power utility, Eskom expects to record a R20 billion loss by year-end, similar to the prior year.

Eskom chairperson Jabu Mabuza said on Thursday (28 November), that the company, which generates approximately 95% of the electricity used in South Africa, generated a R1.3 billion profit in the first half of the financial year.

Mabuza told a news conference that while the company continues to face operational and financial challenges, for the interim reporting period ending September 2019, it realised a healthier EBITDA of R30.6 billion, compared to R28.3 billion in 2018, and a net profit of R1.3 billion, from R627 million in September 2018.

Reuters noted that Eskom’s financial performance is typically stronger in the first half of the year, as it sells more electricity during the winter season and does less maintenance.

“In view of the arrears debt by municipalities and individual users, which continues to escalate, it is encouraging that president Ramaphosa has recently called on all citizens to pay for the services they receive,” said Mabuza.

President Ramaphosa recently called out municipalities and large settlements like Soweto for not paying their electricity bills, saying it is time for South Africans to change their attitudes and get rid of the culture of not paying for services.

The president said that while he understood that boycotting payment for services has always been an effective tool to fight against unjust systems, that culture has no place in modern-day South Africa.

Eskom’s long‐term debt has increased to R454 billion. A total of 61% of funding for the 2020 financial year has been secured by September 2019. Savings of R5.6 billion achieved could be negatively impacted to year end by spend on diesel to stabilise the grid, it said.

The group’s total revenue has increased by 10%, primarily as a result of NERSA’s overall tariff determination of 13.87% for the year.

Local sales volumes declined by 1.29% compared to September 2018, mainly in industrial and distributor categories. International sales have shown an increase in the past six months. The municipal arrear debt continued to increase to R25.1 billion, an average growth of over R850 million per month.

Acting group chief executive, Mabuza said that Eskom’s turnaround journey to achieve financial and operational sustainability is aligned to the Department of Public Enterprises’ special paper (Roadmap for Eskom in a Reformed Electricity Supply Industry).

“Eskom’s turnaround journey that seeks to stabilise, separate and grow the company in order to achieve long-term sustainability will take some time to achieve its objectives.

Group chief financial officer, Calib Cassim indicated that cost savings alone cannot resolve the current financial challenges. Migration towards a cost-reflective tariff remains imperative. “We have lodged applications with the High Court to review the National Energy Regulator of South Africa (NERSA’s) recent revenue determinations.”

In terms of municipal debt, arrear balances including interest have increased by R5.2 billion since March 2019 to a total of R25.1 billion with a payment level of 44% for the top 20 defaulting municipalities. Payment levels at Soweto remain low at 16%.

Cassim indicated that although positive progress has been made with the implementation of the Generation nine-point recovery programme, plant availability together with environmental performance remain key challenges.

“The recovery programme helped us to improve operational performance and ensured no load shedding during winter.

“Unfortunately, we had to implement load shedding for five days in October and November to stabilise the system. In addition, we have seen some improvement in the availability of new build units as defects were fixed. Medupi Power Station’s Unit 3 achieved commercial operation on 5 July 2019 adding 794 MW to the national grid, and 45 km of high-voltage transmission lines were commissioned.”

“The average partial load losses continue to exceed the target of 3,500 MW, with unplanned maintenance increasing to 19.58%. This affects the reliability of our system and requires usage of diesel (OCGTs). Environmental performance and boiler tube leaks remain a challenge in some of our power stations, necessitating the shutting down of these units.

“In the last six months, both generation and transmission network performance has deteriorated, with generation plant availability declining to 69.92% from 75.01% for the same period last year. Generation continues to focus on operational and environmental recovery. Of concern is the high utilisation of the coal fleet,” said Cassim.

“As we know that financial performance is seasonal, projections are that we will declare a loss for the full year’s results, similar to that of last year,” said Mabuza.

Contributing factors include revenue variance between the winter and summer periods with higher demand in the winter and higher winter prices, higher primary energy costs in summer due to higher production from renewable IPPs in summer, and increased price of coal, employee benefits from salary settlements and escalating municipal arrear debt.

“Our debt servicing obligations largely fall within the second half of the year thus putting more pressure on liquidity. We continue to work with our shareholder to stabilise Eskom’s finances. Projections indicate that we are unable to service debt and fund a portion of capex through cash from operations.

“We remain reliant on government support of R49 billion for the 2020 financial year and R56 billion for 2021 to ensure Eskom’s status as a going concern.”

Read: These 10 municipalities and Soweto owe Eskom billions

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Eskom expects R20 billion loss by year-end