State power utility, Eskom on Friday (30 October), published its results for the financial year ended March 2020, showing a net loss after tax of R20.5 billion, despite revenue of R200 billion.
Sales declined 1.3% year-on-year, hampered by capacity shortages and adverse economic conditions, it said.
Eskom cited significant operational and financial challenges – resulting in Stage 6 load shedding during December 2019, and further financial assistance from the government. The declining energy availability factor resulted in 46 days of load shedding.
During the year the company said it raised R50.9 billion in debt, against the target of R46 billion. Furthermore, 64% of the funding requirements for the 2021 financial year have already been secured.
It said that it received Government support of R49 billion in 2020 to support the company’s status as a going concern, with R56 billion committed for 2021. “The funds are reserved for debt servicing,” it said.
Eskom said that without forced retrenchments, its headcount reduced by more than 2,000 people over the period.
- Cost savings of R16.3 billion achieved against a target of R6.2 billion, largely absorbed by R7.5 billion spent on diesel to minimise load shedding;
- Improvement in EBITDA to R37 billion arising from growth in revenue and contained operating costs;
- Operating profit (EBIT) of R9.2 billion;
- Liquidity situation substantially improved, R23 billion cash and cash equivalents, compared to R2 billion the previous year;
- Municipal arrear debt increased to R28 billion in March 2020, from R19.9 billion in March 2019 – Soweto payment rates have increased to 22%, from the very low base of 12%;
- Generation plant and environmental performance remain a challenge with energy availability declining to 67%;
- Primary energy costs rose 16% following the procurement of additional coal to return coal stockpiles to 50 days average;
- All six Medupi Power Station units are now connected to the national grid, five in commercial operation.
Management has made significant changes to arrest the operational and financial decline, it said.
“We have implemented assertive collection strategies against the largest municipal defaulters, which has resulted in a 17% increase in payment levels from these customers during FY21. This is one of the key areas that require a concerted effort if Eskom is to embark on a sustainable course.
“Every consumer of electricity needs to pay for what they consume,” said Andre De Ruyter, chief executive officer at Eskom.
Operationally, Eskom ramped up its reliability maintenance programme of its ageing fleet of coal-fired power stations in the period, which contributed to load shedding increasing to 46 days. Coal stockpiles were significantly improved to a normalised average of 50 days, from 36 days the previous year, he said.
“The urgent need to procure coal during the crisis late in 2018 also resulted in higher prices having to be paid to secure supply. The bulk of these expensive short term contracts have now come to an end, and we expect our coal cost increase for the current financial year to be contained well below inflation,” said De Ruyter.
Among other operational interventions, Eskom has also embarked on correcting the design defects that have inhibited the performance of its new power stations. These repairs will be completed in the third quarter of 2021, and would help significantly increase available generation capacity, the group said.
To improve its financial situation, Eskom has paid particular focus on its capital and operating expenditure, coal inventory optimisation, revenue recovery initiatives and increased international revenues. The company performed well in this regard, achieving savings of R16.3 billion against a target of R6.2 billion, said chief financial officer, Calib Cassim.
Eskom has identified total targeted savings of R63 billion by financial 2023, he said.
“These savings are absolutely critical, particularly in light of the impact of Covid-19, which will no doubt have a negative impact on Eskom’s finance over the next few years. The reality is that our financial results for the 2021 financial year are expected to be similar to FY20, before the fruits of long-term improvements materialise,” said Cassim.
Unpacking the financial performance, Cassim noted there was an improvement in Eskom’s financial position owing to government equity support of R49 billion during the year and R56 billion allocated to FY2021.
Cassim indicated that cash from operations is insufficient to service Eskom’s debt commitments and therefore the support from Government was necessary. But the company cannot rely on government support for survival, he said.
Cost savings alone will not result in Eskom achieving long-term financial sustainability, as tariff have to migrate towards cost reflectivity, warned De Ruyter.
“In order to address our unsustainable legacy debt, we either have to rely on bail-outs funded by the tax-payer, or improve our financial situation by NERSA allowing Eskom to charge cost-reflective tariffs. Paying heed to the Minister of Finance’s Medium Term Budget Policy Statement, we believe the latter is best for Eskom and South Africa,” he said.
Heeding the finance minister’s call to tighten the belt, Eskom does not intend to request another taxpayer bailout beyond current commitments, the chief executive said.