Eskom sales volumes decline as it reports a R18.9 billion loss

Power utility Eskom said Tuesday (31 August) that the Covid-19 pandemic negatively impacted its financial performance for the period ended March 2021, with sales volumes down 6.7%.

It reduced its gross debt by R81.9 billion – a 16.9% reduction – to an outstanding debt of R401.8 billion.

The organisation’s debt remained unsustainable, attracting a net finance cost of R31.5 billion, turning an operating profit of R5.8 billion into a loss of R18.9 billion after tax.

The group said it achieved operational cost savings of R14.4 billion during the year under review, against a target of R14.1 billion. Although sales volumes were down, primary energy costs increased 3.4% to R115.9 billion. Normalised operating costs increased 1.6%.

The group has also continued to suffer the effects of load shedding in 2021.

Just like the overwhelming majority of South African businesses, Eskom was not spared the worst effects of the Covid-19 pandemic, said André de Ruyter, Eskom Group chief executive. “The slowdown of economic activity due to the pandemic led to an unprecedented decline in sales, which fell 6.7% from the previous year.

“Operationally, however, every crisis does bring with it an opportunity. In this case, Eskom used unfortunate lower demand presented by the lockdown to conduct much-needed maintenance at some of our power stations.”

Revenue increased to R204.3 billion during the year, from R199.5 billion the previous year. This is mainly attributed to an 8.76% annual increase in the electricity tariff during the period, offset by a reduction of 6.7% in sales volume, the company said.

Primary energy costs increased by R3.8 billion mainly due to an increase of R3.1 billion in Renewable IPPs due to increased production from these IPPs. The energy availability factor (EAF) deteriorated to 64.19% from 66.64% the previous year. This is a direct consequence of the implementation of the reliability maintenance programme, necessitating more planned maintenance.

There has been a notable improvement in transmission and distribution network performance, it said.

“High levels of asset vandalism, equipment theft and overloaded networks continued to increase breakdowns and maintenance costs, limiting the return on investment and posing a safety risk. Of concern is the increase in electricity theft and illegal connections, which has necessitated load reduction in areas with a high incidence of illegal connections.”

De Ruyter said that Eskom’s long-term objectives of achieving operational and financial sustainability are dependent on the successful implementation of the turnaround plan currently underway.

“The turnaround plan, which is overseen by a diverse executive committee (Exco), comprising 56% Black female representation, focuses on operations recovery, improving the income statement, strengthening the balance sheet, driving business separation and bringing about a winning, can-do culture,” he said.

Build programme

Despite a recent serious setback with the explosion at Unit 4 of Medupi Power Station, the build programme is progressing well, the group said. Two units at the Kusile Power Station achieved commercial operation during the year under review, adding an installed capacity of 1,598MW to the national grid.

“This brings the completion of the build programme closer, with half this power station now completed. Significant progress has also been made in correcting the major plant design defects at Medupi, with Unit 3 reaching full generation capacity in April 2020.

“While there has been encouraging improvement in particulate emissions performance in Eskom generation fleet, the challenges at Kendal Power Station are being addressed.”

Eskom said that its business separation is on track. All the necessary documentation was completed and signed by 7 June 2021, thereby completing the functional separation of the three-line divisions.

“Eskom is working towards achieving legal separation of the Transmission entity. A number of dependencies are lagging behind, putting the finalisation of separation of the Transmission entity by 31 December 2021 at significant risk. However, our intention remains to comply with the timelines set out in the Department of Public Enterprises Roadmap, despite the obstacles encountered.

“The legal separation of the Generation and Distribution entities will be finalised within the 2022/2023 financial year,” it said.

Headcount

Eskom pointed to a 4.5% reduction in employee numbers, with a total of 2,023 employees leaving the service of Eskom through natural attrition and voluntary separation. This had the effect of reducing the headcount to 42,749 during the year, from 44,772.

“This means that over the past two years, Eskom has reduced its workforce by just under 4,000 employees,” said De Ruyter. “It must again be stated that not a single one of these was a forced retrenchment.”

Amongst these were 74 voluntary separation packages granted to managerial level employees in the 2021 financial year, further reducing employee benefit costs and reducing the manager: employee ratio. “This further helps improve Eskom’s operational efficiency,” he said.

Despite the Covid-19 lockdown, Eskom said 106,669 new customers were connected to the grid under the Department of Mineral Resources and Energy’s (DMRE) electrification programme.

Unpacking the financial results, Eskom chief financial officer, Calib Cassim, said the strengthening of the Rand had a significant positive impact on results for the year.

Cassim stated that Eskom’s liquidity remained a concern due to the high cost of servicing the outstanding debt, working capital requirements, escalating municipal arrear debt, and sub-investment grade level credit ratings, among other factors.

“This picture is likely to remain unchanged in the short- to medium-term. However, reliance on government support mitigates the material uncertainty regarding Eskom’s status as a going concern,” said Cassim.

Outstanding municipal debt rose 26% to R35.3 billion in the period. Among other challenges, Eskom is working closely with the Political Task Team led by the Deputy President. Eskom is also pursuing active partnership agreements with some of the municipalities, in which it hopes to arrest the spiral in outstanding debt.

“Cost savings alone is not a solution. Eskom’s capital position must be resolved. Cost-reflective tariffs and resolving the municipal arrear debt are required to implement Eskom’s turnaround and ensure long-term financial sustainability successfully. For its part, Eskom continues its concerted effort to reduce the debt and to improve gearing,” said Cassim.

Eskom has so far secured R16.2 billion of its R41.6 billion funding requirement for the 2022 financial year.


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Eskom sales volumes decline as it reports a R18.9 billion loss