Eskom’s 20 year road to financial crisis in a nutshell

Crisis-hit power utility Eskom has reported a record loss for the year ended March 2019 of R20.7 billion on the back of unsustainable debt levels.

Eskom is currently the biggest liability to South Africa’s economy, a position that has now been exacerbated by a two massive bailouts from the government: a proposed R59 billion bailout over the next two years, and a promised R69 billion in guarantees to 2021.

On Tuesday (32 July), the financial crisis at Eskom was laid out in its integrated report for the 2018/19 financial year.

Below, we break down several of Eskom’s financial and operational metrics over the last 17 years, including revenues, operating expenses, profits and debt liabilities, as well as things like tariff increases, power generation and money owed to the group.

Alone, each of these graphs tells a separate story, but put together, they outline just how much trouble the power utility is in:

In a nutshell, while revenue increases – as a result of tariff hikes – have done enough to cover Eskom’s basic operating costs (and sometimes even yielded a small profit), the power utility’s massive debt costs have now pushed the group to a record loss, forcing the government to step in and bail it out.

Revenue and profit

Over the last two decades, Eskom has managed to grow its revenue enough to cover most of its operational expenses.

Revenue growth has been almost single handedly driven by tariff increases – with virtually no change in the group’s power generation over the period, despite more demand. Meanwhile, the group has continuously grown its staff contingent.

*Expenses include primary energy costs, employee benefits, depreciation and amortisation, impairment losses and other operating expenses.

Profits, meanwhile, reveal the true story – how despite greater revenue, the company simply cannot keep up with its debt repayments, which is why government has had to step in on numerous occasions to bail it out.

While Eskom has shown strong revenue growth over the past 17 years, a profit graph for the same period shows precisely how volatile things have been.

Tariff hikes and power production

Analysts and energy experts have pointed out that the power utility’s revenue growth is not as a result of increased sales (as users have been actively encouraged not to use too much power), but has been ‘artificially’ bolstered by fee hikes.

Eskom’s reported average revenue per kilowatt hour (expressed as its average cost of electricity) has grown from 14.98 cents per kWh in 2002 to 90.01 cents per kWh in 2019 – a jump of over 500%.

Over the same period, power generation has remained flat, fluctuating year by year, but never exceeding 239,109 gigawatt hours (GWh). In 2019, power production dropped to 218,939GWh.

This shows that revenues are not being driven by supply and demand (ie, greater generation), but rather directly by tariff hikes.

Growing debt

By far the biggest weight on Eskom’s shoulders is its debt. Where revenue has grown at a more contained rate, debt liabilities have escalated rapidly over the period.

Eskom’s total liabilities amount to R605 billion – of which R440 billion is attributed to debt securities and borrowings.

The latter figure is Eskom’s current (short term) and non-current (long term) debt liabilities, which represents various debt instruments the group has taken on, which may mature in any given year.

Since 2005/06, this has grown massively, from around R30.2 billion that year, to over R440 billion in 2019 – an increase of almost 15 times (1,360%).

Money owed

While much of Eskom’s financial mess can be directly attributed to the company itself (and corruption, mismanagement and government interference), some of the blame also lies with users.

Eskom needs to hike prices to make up revenue to cover operating costs, expansion, and to pay off its loans – but consumers and municipalities as a result, struggle to make payments.

Thousands of South Africans are in arrears with payments to Eskom, a problem which has worsened over the years.

Total municipal arrear debt has continued to escalate to unacceptably high levels, amounting to R19.9 billion (including interest) at year end. When added to current debt owed, this now totals over R26 billion.

This figure excludes Soweto’s small power users (SPU), who have amassed debt totalling R13.6 billion (including interest). Combined, South Africans owe Eskom almost R40 billion.

Read: Eskom lists growing challenges as losses swell to R20 billion

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Eskom’s 20 year road to financial crisis in a nutshell