Massive turnaround for Eskom
Power utility Eskom recorded a pre-tax loss of approximately R200 million for the first quarter of its 2025 financial year—a massive R6.7 billion turnaround from the R6.9 billion loss recorded the same time last year.
According to a performance update presented to the Standing Committee on Public Accounts (Scopa) on Wednesday (9 October), Eskom is making significant strides in executing its turnaround plan, which was implemented in 2020.
Financially, while the group is still running in the red and has suffered from years of multiple billion-rand losses, it aims to hit breakeven in FY2025 (ending March 2025) and return to profitability in FY2026—targeting as much as R12 billion in profit.
This will be achieved through the group’s Profit Maximisation Programme (PMP), which aims to change Eskom’s financial position through turnaround initiatives focused on five main areas:
- Revenue growth,
- Cost efficiency,
- Primary energy optimization,
- Digital transformation and
- Capital productivity
The PMP is primarily a 2-year initiative, with savings targets set to expedite the business to break even in year 1, reach profitability in year 2 and be financially sustainable in the subsequent years.
To break even in 2025, Eskom’s board has approved R16.2 billion in additional cost-saving measures, which mainly focus on “quick wins” while mitigating high risks with additional initiatives—such as continued savings on Open-Cycle Gas Turbines (OCGTs), reducing municipal debt and electricity theft, and finding new revenue opportunities.
If these can continue into the next financial year, Eskom estimates it could return to profitability in FY2026 at around R12 billion.
Further out, it’s targeting a sustainable profit margin of around 10%, “future-proofing” the business without having to rely on double-digit tariff increases.
Current financial performance
What the group projects and how it is currently operating are not entirely on the same page, however.
At 31 August 2024, Eskom managed to achieve savings of R9.2 billion through the PMP, but this was against the target of R10.2 billion, which is R1 billion below target.
Looking at the actual financials, the group is still operating in the red.
In the first quarter ending June 2024, Eskom’s pre-tax loss narrowed by R6.7 billion to R200 million, aided largely by significant tariff hikes of around 13% for direct customers from April 2024.
Earnings before interest, taxation, depreciation and amortisation (Ebitda) improved by around 100%, and revenue was up 15%.
The group noted that its debt securities and borrowings were R8.1 billion lower—although the total remains staggeringly high at R445.5 billion. Another black spot marring the otherwise positive results is the drop in sales volumes, which are 1TWh lower.
Based on the Q1 forecasting, Eskom said that it could show a significant R7.8 billion improvement on its forecast pre-tax loss for the year – R1.1 billion against the budgeted loss of R8.9 billion, an improvement of R7.8 billion.
Eskom attributes the turnaround to concerted efforts to improve generation and contain its costs—the latter of which is yielding savings of approximately R20 billion per annum.
It has reduced its primary energy spending by 9.7% and has cut the use of costly OCGTs—which were used excessively over the past two years because of load shedding—by 70%.
Total OCGT costs year to date are sitting at R3.5 billion versus the R10.2 billion spent in the same period in 2024.
On the generation side, the maintenance strategy has paid off, bringing energy availability (EAF) in the range of the 65% target set for 2024, with around 4,000MW more available than during the worst of load shedding in 2023.
The group anticipates close to 3,000MW more being brought back online by March 2025 (FY2025), which would put it in the range of the 70% EAF target set for then.
“With operational turnaround well underway and financial performance already exceeding corporate plan targets, the business is now able to focus on the path to profitability and transition responsibly into growth,” it said.
However, rosier financial and operational performance has major drawbacks.
Eskom still faces a mountain of debt and flagged key risks to its outlook, including plant performance, IPP delays, unstable borrowings on the balance sheet, tariff decisions and the growing pile of municipal debt.
On the municipal debt, Eskom flagged this as one of the only aspects of its financial recovery that has not yet been addressed, with debt expected to hit R85 billion for FY2025.
It said that it is working with the national government, the National Treasury in particular, to address this, having seen only limited success with its standing municipal debt relief programme.
The other big red flag is tariffs.
Eskom has applied to energy regulator Nersa to implement massive tariff hikes over the next three financial years (MYPD6). The Department of Electricity and Energy, along with various other stakeholders, have pushed back against this in a big way, making it unlikely that Eskom will get the hikes that it wants.
Even if it does get the hikes that it wants, its financial data already shows that sales volumes are down, giving credence to the concerns voiced by multiple energy experts that the power utility will ultimately dig its own grave and price itself out of the market.
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