Final stretch for unbundled power line company
• New arm will help improve outlook next year as utility heads for expected R32bn pretax loss
Eskom expects its long-awaited separate transmission company could gain the approval of regulators and lenders by the end of this month, with the new company providing upside to the power utility’s outlook in the coming year.
Announcing its interim financial results on Friday, Eskom said that after cutting its losses in half last year, it now expects its pre-tax loss in the year to end-March 2023 to widen by 113% to about R32bn.
It cited declining sales volumes and “constrained” plant performance as well as low tariffs and high costs.
Profits for the first half of the year to end-September were down more than 60% to R3.84bn. The second half of Eskom’s financial year is traditionally loss-making because it includes high maintenance and lower revenue during the summer months.
The separate transmission company, first promised by the government four years ago, is expected to make it more attractive for private power generators to enter the market.
Eskom’s board said on Friday that the issuing of the relevant licences by the National Energy Regulator to allow the transmission company to operate was expected to be concluded in April. Eskom hopes to conclude the consent process with lenders by the end of April.
These approvals are all that remains to give effect to the legal separation of the transmission company.
Meanwhile, the government is in the process of revising legislation to open up the market. The cabinet last week approved the Draft Electricity Amendment Bill for submission to parliament, which will provide for the creation of this new transmission system operator and define its functions. One of these will be to set up and manage an electricity trading platform.
University of Cape Town energy expert Prof Anton Eberhard told Business Day that the new independent transmission and market operator would contribute to making SA’s electricity market more competitive. It would also increase private investment into transmission.
Eskom expects regulators and lenders to approve its longawaited separate transmission company by month end, with the new company boosting the utility’s outlook in the next year.
Announcing interim financial results on Friday, Eskom said that after halving its losses last year it now expects its pretax loss for the year to end-March to widen 113% to about R32bn. It cited falling sales and “constrained” plant performance plus low tariffs and high costs.
Profit for the first half of the year to end-September was down almost 60%. The second half of Eskom’s financial year is traditionally unprofitable as it includes the high-maintenance, lower-revenue months of the summer.
The separate transmission company, first promised by the government four years ago, is expected to make it easier and more attractive for independent power generators to enter the market.
CONSENT
Eskom’s board said on Friday that the process of issuing of licences by the National Energy Regulator (Nersa) to allow the transmission company to operate is expected to be concluded in April. Eskom hopes to conclude the consent process with lenders by end-April.
These approvals are all that remain to give effect to the legal separation of the transmission company.
Meanwhile, the government is revising legislation to open up the market. The cabinet last week approved a draft electricity amendment bill for submission to parliament, which will provide for the creation of this new transmission system operator and define its functions. One of these will be to set up and manage an electricity trading platform that will provide nondiscriminatory access to the transmission network.
In the state-owned power utility’s interim results for the six months to end-September, the board, in an assessment of Eskom’s ability to continue as a going concern, noted “deterioration in some of the group’s financial indicators compared to March 31 2022”.
According to the board, some of the factors weighing on Eskom’s finances are “low tariffs, stagnant and contracting sales volumes, above-inflation cost increases [and] constrained generating plant performance”.
This is due to seasonal fluctuation in its revenue and costs. The first six months of the financial year, March to September, are high revenue months due to rising electricity demand, and costs are usually lower in this period as Eskom cuts back on maintenance during winter.
The utility’s debt rose from about R395bn in the previous year to about R423bn at the end of the reporting period.
The risk posed by rising debt will be mitigated through the debt-relief package announced by finance minister Enoch Godongwana in February that will provide Eskom with total debt relief of R254bn over the next three years.
However, to fully secure its funding need of R60bn in 2023 — of which about 77% has already been secured — some funds will have to be raised through a private placement subject to market conditions to allow for a liquidity buffer until the Eskom Debt Relief Bill has been enacted.
DEBT
Other factors Eskom has to deal with to improve its financial performance include “challenges that resulted from mismanagement and corruption”; the performance of its power stations which are running at efficiency levels of less than 60%; and the increase in arrear municipal debt, which is expected to rise to about R56bn in the 2023 financial year.
Eskom said the recent appointment of Kgosientsho Ramokgopa as electricity minister will help speed up critical maintenance to improve the generation capacity of its fleet.
“[Ramokgopa] will focus on solving the power crisis at Eskom. It is expected that his primary task will be to reduce the severity and frequency of load-shedding and to oversee the electricity crisis response,” the board said.
University of Cape Town energy expert professor Anton Eberhard said that the new transmission company and the establishment of an electricity market will give large customers a choice of electricity suppliers and create the possibility of daily trades in electricity supply — all contributing to making the electricity market in SA more competitive.
“An independent transmission system and market operator will create a transparent and fair platform for the entry of private power producers and will enable more competition, not just in long-term contracts but also trading in a power exchange,” he said.
Another important benefit is increased private investment in transmission capacity.
Lack of transmission capacity is the biggest constraint in getting more power on the grid, said Eberhard.
“We need massive new investments to reconfigure the grid, but Eskom is deeply indebted, struggles to raise new capital and has diverted capital away from transmission to finish Medupi and Kusile,” he said.