Will the last person at Eskom turn off the lights
ESKOM’s mounting debt coupled with defaulting municipalities and a dispute with unions over wages is threatening the power utility’s viability.
Eskom announced it would take at least 30 days for the system to recover, with sporadic threats of load shedding, after an illegal strike by its workers.
Eskom announced on Wednesday that it had filed a dispute with the National Union of Mineworkers (NUM), Solidarity and the National Union of Metalworkers of South Africa (Numsa) over disciplinary action against members who took part in the strike.
Questions have been raised about how the utility plans on sustaining an added R1 billion wage bill to their troubled finances.
Eskom has offered a 7.5% salary increase for the 2018/2019 period and 7% for 2019/2020 and 2020/2021.
Earlier this week Public Enterprises Minister Pravin Gordan said over the past 10 years, Eskom’s costs and borrowing have increased dramatically.
With employee numbers having also increased from 32 600 employees to 47 000, with a bill that went from R9.4million to R33m, Gordan said the costs of employees have become the utility’s second biggest expense after coal.
Energy expert Chris Yelland said Eskom simply could not afford the increased salaries when their sale of electricity has decreased over the past decade.
“Eskom cannot afford these wage increases. It is going to cost them an extra R1bn a year for this salary increase at a time when their revenue is declining,” he said.
“The decline in their sales volume is less than it was 10 years ago. This is because of the dramatic rise in price of electricity and so customers are using less of their product and many industries are not growing because of the weak economy and many of the energy-intensive customers like deep level mining and steel are actually running on reduced time and that is due to market conditions and high prices of electricity which is making them less competitive.
“Eskom has to break out of this but it is very politically difficult to do so because Eskom does not have a lot of contingency plans so when the labour force has a strike for one day, the whole country goes into load shedding.”
Yelland also said at the rate that Eskom is borrowing money; its inability to pay interests on its debt highlights the financial mess it is in.
“Eskom is borrowing a lot of money, its debt is currently standing at R395bn as of the beginning of this financial year with projections that it will rise to R600bn in four years,” he added.
“Even at current debt level, their income from operations is not sufficient to pay their interest bills for that debt, the interest bill is eating away all of its incoming from operations.
When you are in a position where your operations are unable to fund your interest, let alone the capital repayment, then it is not sustainable. Eskom is in financial difficulties because its debt is too high, it is borrowing money in order to pay back debt.”
Another crisis that threatens Eskom’s bottom line is the ever increasing municipal debt. To date Eskom is owed R27bn of which R14bn is overdue.
While Eskom has been gradually cutting power supply to defaulting municipalities and trying to come up with solutions to ensure future payments, they have been warned against trying direct supplies, cutting out the municipalities.
Something Cooperative Governance Minister Zweli Mkhize said would hurt the finances of municipalities who depend on it for revenue.
“It is very difficult for Eskom to cut off a municipality for a number of reasons, you have the paying customers, you have schools, hospital and other emergency services and if you cut them off you are hurting essential services and you are hurting the very people who are paying your bills,” explained Yelland.
“Municipal debt is a huge problem and every year it is growing significantly, if you were to look at municipal debt over the last three years, has grown exponentially and one of the reasons for this is that electricity is essentially become unaffordable because the price of electricity has gone up dramatically.”
Its debt is currently standing at R395 billion