Eskom is now ‘unsustainable’
PROSPECTS GET DIMMER: ‘LOAD SHEDDING A REALITY’
Power utility is buckling under debt burden of R419 billion.
Without big changes, utility may not be a going concern – chairperson.
Eskom is buckling under its debt burden of R419 billion and seems to be angling for a government bailout. The debt could increase to R600 billion in the next three years. The utility has already used R337 billion of its R350 billion government guarantees and might ask for further guarantees.
Yesterday, the power utility company reported an 89% drop in net profit from R6.3 billion for the six months ended September 2017, to R671 million a year later. Newly appointed chief financial officer Calib Cassim said the fullyear loss could be as much as R15 billion, up from the R11.2 billion full-year loss budgeted for at the beginning of the financial year.
Eskom chief operating officer Jan Oberholzer said “load shedding is a reality in future”.
In the reporting period, Eskom generated R26.6 billion from operating activities – R18.5 billion short of the R45.2 billion needed to service its debt. This after debt service costs almost doubled from R23.2 billion at end of September 2017.
Staff costs and primary energy costs each rose 12% and arrear debts from municipalities have increased 25% to R17 billion. Sales volumes dropped 0.8%, which caused revenue to increase by only 2.7%, despite a 5% tariff increase.
Chairperson Jabu Mabuza made it clear that “Eskom is not sustainable as conceived and seen today”.
He said Eskom was locked into a permanent loss situation and revenue was structurally limited. Expenses have ballooned due to inefficiencies and electricity tariffs were not cost reflective. The problem was that customers cannot afford cost-reflective tariffs, he added.
He said without significant changes, funding costs would increase further and the utility might not be able to continue as a going concern.
Eskom wasn’t selling enough electricity or collecting the revenue for the electricity it did sell, Mabuza said. It was spending increasingly more just to make the payments on the money it has borrowed.
The board has prepared an “ambitious” turnaround plan and is currently engaging government about it.
He emphasised Eskom’s problems could not be solved by Eskom alone and the utility would have to “work with government to reduce Eskom’s debt and debt service cost”.
Mabuza said the Eskom board initially thought the conversion of debt to equity might work, but then realised that its biggest creditor, the Public Investment Corporation (PIC), would need a return on equity for government pensioners. “It cannot invest in a loss-making entity.”
If the PIC won’t invest, why would other funders? he asked, adding: “There are other ways, like a bailout or equity injection.”
He added that there was “little that can be sold” in terms of assets. Except for Medupi and Kusile, other power stations operated at an average Ebitda margin of 21%, which wouldn’t be attractive to investors, he said.
Eskom’s problem was the load of its debt and its serviceability, Mabuza said. “If we can get some relief on the load”, the serviceability would become less of a problem.