Consumers can expect electricity prices to continue to rise after Eskom said “cost reflective” tariffs were needed to ensure the future sustainability of the heavily indebted parastatal.
Eskom’s chief financial officer, Calib Cassim, who presented Eskom’s financial results for the year ended March 2021 at a media briefing on Tuesday, said that although gross debt had been reduced by R81.9-billion to R401.8-billion, a 16.9% drop, this was still a long way from a viable business entity.
Although the stronger rand had had a positive effect on Eskom’s financial results, liquidity remained a concern because of the high cost of servicing the outstanding debt, working capital requirements, escalating municipal debt and sub-investment grade level credit ratings.
Cassim said Eskom had realised an operating profit of R5.8-billion despite the difficult environment during the Covid-19 pandemic and lockdowns, but its net debt service cost of R31.5-billion had resulted in a net loss after tax of R18.9-billion.
“This picture is likely to remain unchanged in the short to medium term. However, reliance on government support mitigates the material uncertainty regarding Eskom’s status as a going concern,” Cassim said.
He said Eskom had already drawn down R271-billion of the R370-billion and R47-billion was still available.
Outstanding municipal debt rose 26% to R35.3-billion for the period, with only 10 municipalities honouring their arrears payment agreements.
On a positive note, Eskom achieved cost savings of R14.4-billion against a target of R14.1-billion and revenue growth improved to R204.3-billion because of a 8.76% tariff increase, although the pandemic had negatively affected performance, leading to a 6.7% drop in sales. Primary energy costs, including that of coal, increased 3.4% to R115.9-billion, while operating costs increased by 1.6%.
Contributing to Eskom’s overall cost savings was a 4.5% reduction in the 44 772-strong workforce, which now stands at 42 749. This was achieved through natural attrition and voluntary severance package agreements.
Cassim said the state power utility was on track to further reduce its staff complement and had also not implemented annual increases or bonuses for management.
“Cost savings alone is not a solution. Eskom’s capital position must be resolved. Cost-reflective tariffs and resolving the municipal arrear debt are required to achieve the successful implementation of Eskom’s turnaround and to ensure long-term financial sustainability. For its part, Eskom continues its concerted effort to reduce the debt and to improve gearing,” said Cassim.
Eskom’s group chief executive, André de Ruyter, said the economic slowdown caused by the pandemic had led to the “unprecedented” decline in sales. “Operationally, however, every crisis does bring with it an opportunity. In this case Eskom used the unfortunate lower demand presented by the lockdown to conduct much-needed maintenance at some of our power stations,” he said.
Eskom’s energy availability factor deteriorated to 64.19% from 66.64% the previous year. This was a direct consequence of the company’s reliability maintenance programme, which resulted in more planned maintenance, he said. Eskom recorded 47 days of load-shedding for the period compared to 46 the previous year.
De Ruyter warned that ongoing maintenance meant load-shedding was a possibility over the coming months.
He said Eskom’s long-term objectives of achieving operational and financial sustainability were dependent on the successful implementation of the turnaround plan.
“The turnaround plan, which is overseen by a diverse executive committee comprising 56% black female representation, focuses on operations recovery, improving the income statement, strengthening the balance sheet, driving business separation and bringing about a winning, can-do culture,” said De Ruyter.
The planned business separation of Eskom’s generation, transmission and distribution divisions was “on track”, with the legal documentation having been completed and signed by 7 June, completing the functional separation of the three line divisions.
He said the utility was working towards achieving the legal separation of the transmission entity, although a number of dependencies were lagging, placing finalisation of the move by 31 December at risk.
But, he said Eskom intended to comply with the time lines set out in the department of public enterprises roadmap. The legal separation of the generation and distribution entities would be finalised within the 2022-23 financial year.