/ 13 February 2019

As it stands, Eskom will cease to exist by April — DPE

(Madelene Cronje)
In March, Moody's downgraded Eskom's credit ratings from B2 from B1, citing an absence of concrete plans to place its business on a sound financial footing.(Madelene Cronje/M&G)

On its current trajectory Eskom will “cease to exist” by April and is technically insolvent, the department of public enterprise’s acting director general Thuto Shomang told parliamentarians on Wednesday.

In a presentation made to the portfolio committee on public enterprises the department outlined the challenges facing the power utility, which began intensive load-shedding on Monday.

READ MORE: Eskom board convenes ‘marathon’ meeting to deal with power cuts

The company’s debt levels, currently at R420-billion, represented 15% of the South Africa’s sovereign debt according to the department. The cash Eskom is generating does not cover operating and debt-servicing costs, it said in its presentation, and the risk of the utility defaulting on its debt, threatened the economy. At the same time municipal, as well as Soweto debt, owed to the cash-strapped power utility was growing at R1-billion each month.

Employee numbers had grown from 32 000 in 2007 to 48 000 in 2018, with the associated wage bill rising from R9.5-billion to R29.5-billion.

On the operational side, essential maintenance had not been performed on Eskom’s fleet of power stations, which are on average 37 years old. This is compounded by the poor quality of maintenance that is carried out, according to the department, with 40% of plant breakdowns due to human error.

Cost overruns and poor performance are also hampering its new build programme with the construction of mega power stations Medupi and Kusile plagued by poor planning, poor engineering designs, poor procurement and contracting practices and corruption.

Costs of the plants have escalated by R300-billion Shomang told MPs. 

As part of the plan to address Eskom’s financial straits, President Cyril Ramaphosa announced in the State of the Nation address (Sona) last week that the state would provide financial assistance to the ailing parastatal — the details of which will be revealed in the upcoming budget. He further outlined plans to have Eskom separated into standalone business units — generation, distribution and transmission — under the Eskom holding company.

Experts and analysts have however remained cautious on the plan, waiting for greater clarity on the mechanics of how the package will work.

On Tuesday, Public Enterprises Minister Pravin Gordhan outlined steps the company is taking to address its operational challenges. In a speech to the National Assembly he said the board will amongst other things, institute an urgent review to establish when “realistically” Medupi and Kusile power stations will be completed, as well as, determine the extent of the design and other operational faults at the stations and implement measures to minimize their escalating costs.

As part of addressing the wider operational problems, Eskom would also call on ENEL — a leading energy supplier — to provide external technical assistance. It will be sending two to three coal power station engineers to South Africa shortly, the minister said.

Eskom began implementing load-shedding on Sunday. But on Monday, due to several unexpected outages, it upped the intensity of load shedding from stage two to stage four. On Wednesday, this had been downgraded to stage three.