Eskom this week reported surprisingly good results for the first half of its financial year, realising 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.
However, despite the unexpected profit – which was initially projected at between R5 billion and R10 billion – the crisis-hit power utility is still projecting an annual loss of R20 billion, which is around the same levels as reported in the previous year.
According to Intellidex analyst, Peter Attard Montalto, the reason for the massive projected loss comes down to seasonal changes between the first and second half of the year, and the fact that the reported profit is also thanks to a multi-billion rand bailout from government.
In the first half of the year, Eskom received a R13.5 billion bailout from National Treasury, with a R35.5 billion bailout waiting in the wings for the second half of the year. This bailout clouds the bigger picture of Eskom’s finances – as well as the fact it has over R450 billion in debt.
Eskom’s long‐term debt has increased to R454 billion.
“Considering this, the sheer unsustainability of Eskom in its current guise becomes apparent,” the analyst said.
The second half of the year has historically been particularly brutal for Eskom, with season stresses adding to the group’s problems. These include:
- Summer tariffs are lower than winter ones whilst summer volumes are lower than winter volumes;
- Maintenance costs are higher in summer than in winter;
- The sequencing of contract price increases and debt service costs falls more in H2 than H1. This includes wage increases being felt more in H2;
- H2 will see the fuller implementation of the nine point turnaround plan costs;
- Payments to Renewable Energy Independent Power Producer Procurement providers are higher in H2 than in H1 given sunlight hours.
Attard Montalto said that he agrees with Eskom’s projection of a R20 billion loss, noting that the power utility will face further stress from:
- A continued shrinking of sales volumes, including from rapidly rising arrears and write offs required;
- No help yet from tariff related court cases;
- Rising debt service costs on downgrade plus pushing through rest of issuance plan;
- Open gas turbine costs continuing to rise;
- Load shedding risks;
- Unbundling costs start to bite.
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.
“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.”