/ 23 December 2022

Eskom debt down R5.5bn, but balance sheet pressure is high

The interest costs on Eskom’s debt amounted to R35.8-billion
Photo: (Dean Hutton/Bloomberg/Getty)

Eskom has managed to shave off more of its debt. But, as Eskom chief executive André de Ruyter noted, the utility’s unsustainably high debt continues to hamper its operations severely. 

According to Eskom’s financial results for the year ended 31 March 2022, the power utility’s debt declined to R396.3 billion, from R401.8 billion in 2021. Presenting the results on Friday, De Ruyter pointed out that Eskom’s debt burden “continues to play an extraordinary role in the financial life of Eskom”.

All of the utility’s key financial indicators improved, resulting in it posting a smaller loss of R12.3 billion, down from a R25 billion net loss in 2021. Eskom’s cash from operations rose to R53.4 billion from R31 billion, but this was still insufficient to cover the utility’s debt servicing costs. 

According to the utility’s integrated report, Eskom’s debt repayment profile remains under pressure over the short and long term. In 2022, total debt service costs amounted to R71.4 billion. This figure is expected to rise to R79.5 billion in 2023.

Over the next five years, Eskom’s debt repayments and interest payments will amount to R176.9 billion and R118.9 billion respectively.

Chief financial officer Calib Cassim said addressing Eskom’s debt is key to ensuring the utility’s financial stability.

On a more positive note, the treasury’s decision to take on a large portion of Eskom’s debt is expected to free up the utility’s finances so that a greater amount can be dedicated to rehabilitating its ageing coal-fired plants. 

Finance Minister Enoch Godongwana announced in his October medium-term budget speech that the government would relieve Eskom of between a third and two-thirds of the debt. The exact amount will be announced by Godongwana in February 2023, when he is expected to table his budget.

In his review, contained in the financial report, De Ruyter noted that Eskom is working with the treasury to find a solution to the utility’s debt. “[W]e are tremendously grateful for their support in developing a way to make Eskom more financially sustainable.”

The treasury needs to assess the amount needed to put Eskom in a sustainable financial position, which will also be informed by the selection of the debt instruments and the execution of the debt takeover, which has to be discussed with Eskom’s lenders.

The treasury will also need to consider the National Energy Regulator of South Africa’s (Nersa’s) tariff decision, which was recently postponed.

Cassim said Eskom’s financial performance is expected to deteriorate because of a decline in energy availability, low generation capacity and its high use of gas-fired turbines fuelled by diesel. 

Load-shedding, which has spilled into the festive season, has been aggravated by low diesel reserves. Spending on the gas-fired turbines increased by more than 50% to R14.7 billion from R7 billion in 2021.

Energy analyst Chris Yelland Tweeted that Eskom’s week-on-week energy availability factor for week 50 in 2022, hit a record low of 50.73%. This came after a record low of 51.55% in week 49. The diesel spend is expected to grow by R10 billion at the end of the 2023 financial year.

Eskom’s continued decline has come at a high cost to the economy, with some economists estimating that stage six load-shedding will deal a R4 billion blow for each day the blackouts persist. 

Last month, the South African Reserve Bank noted in its monetary policy committee statement that load-shedding could shave 0.6 percentage points from the country’s GDP in 2023.

De Ruyter resigned last week citing “the operational challenges, the financial challenges, the challenges surrounding societal matters, including crime and corruption as well as some of the issues we have experienced in delivering the unbundling of Eskom”  and “support of the broader political economy, and that support is absolutely critical to enabling the success of Eskom”.

Eskom has been rocked by sabotage, which has necessitated the deployment of the South African National Defence Force to some of its plants.