Losses put Eskom’s sustainability at risk

November 25th, 2014, Published in Articles: EE Publishers, Articles: Energize


Eskom predicts that it will post a net loss of R8,8-billion for the six month period from September 2014. This loss will virtually wipe out the utility’s R9,3-billion profit by 31 March 2015, undermine the utility’s capex and opex budgets, and put the utility’s sustainability at risk.

Speaking at Eskom’s interim financial results presentation on 25 November 2014, Tshediso Matona, the utility’s CEO, said Eskom is expected to post a net profit of R500-million for its financial year which ends on 31 March 2015. Its profit declined to R9,3-billion in the six months leading up to September 2014, from R12-billion in September last year, as a result of a 1,4% decrease in sales volumes (kWh), attributed to mining strikes, electricity supply constraints, and the closure of BHP Billiton’s Bayside smelter, as well as a 22% increase in the cost of primary energy (coal and diesel) in first six months to 30 September 2014.

Tsholofelo Molefe, the utility’s financial director, said that Eskom expects to lose a further 2400 GWh of sales volume in the next six months. The utility’s cash flow is under pressure due to time and cost overruns at Medupi and Kusile, rising primary energy costs, and difficulties in collecting revenue from certain municipalities. The financial sustainability and cash flow problems have put the utility’s capex and opex under pressure.

Eskom’s financial recovery plan, announced by National Treasury recently, entails R23-billion equity in the 2015/16 financial year, and a further R250-billion debt. The utility’s debt/equity ratio is already too high, so it’s hard to see how government’s recovery plan can stabilise its declining credit rating. The utility is calling for a review of electricity tariffs by NERSA to increase electricity prices.

Matona said the utility is celebrating certain successes, including improved safety, 1000 MW of renewable energy on its grid, the completion of the Sere wind farm, and its corporate social investment (CSI) performance.  He said that, in the seven weeks since his appointment as CEO, he has made several new appointments to the executive committee to stabilise the high turnover of its executives. Despite these successes, Eskom finds itself in its most challenging position in living memory. Its financial position is systematically deteriorating and the utility is facing very serious challenges to its operational sustainability, reliability and predictability. Matona said that the rapid increase in unplanned generation outages has caused the availability of electricity to decline from a target of 80 to 76%.

Matona is seeking clarity on Eskom’s role in the electricity supply industry of the future, and said that the utility needs certainty regarding government policy and decisions. The country can expect load shedding to be a regular part of life for the next few years as the utility’s maintenance backlog is addressed.



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