Eskom’s progress in restoring stability to the electricity grid, its introduction of renewable energy and confrontation of corruption will contribute to the power utility yielding a profit of more than R10 billion in the 2024-25 financial year. (Waldo Swiegers/Bloomberg via Getty Images)
Eskom’s progress in restoring stability to the electricity grid, its introduction of renewable energy and confrontation of corruption will contribute to the power utility yielding a profit of more than R10 billion in the 2024-25 financial year.
This comes after a tumultuous 2023-24 year marred by 329 days of load-shedding, municipal debt that ballooned to R74.4 billion and the posting of a R25.5 billion net loss, which was a just over R9 billion improvement from its R34.6 billion loss incurred in 2022-23.
These were some of the highlights of Eskom’s annual results announcement on Thursday for the financial year which runs from 1 April 2023 to 31 March 2024.
The announcement was delayed because of the power utility’s probe into the “bulk generation” of illegal prepaid electricity tokens on its online vending system for prepaid meters, challenges regarding the establishment of the National Transmission Company of South Africa and the time it had taken to respond to reportable irregularities raised by external auditors, Eskom board chairperson Mteto Nyati said.
“Collusion is suspected between Eskom staff and illicit operators who breached controls within the prepaid ecosystem to facilitate the creation and sale of fraudulent prepaid electricity tokens,” Nyati said.
He said a forensic investigation is underway to determine the root causes that led to some 1.7 to 2 million customers not paying for electricity and that the team would make recommendations to deal with the problem.
Nyati said the power utility continues to face “systemic issues” affecting its financial, operational and sustainability performance.
These include an unreliable generation plant resulting in poor performance, its dysfunctional organisation culture, a weak balance sheet due to a high debt burden and tariffs that are not reflective of costs, as well as an outdated business model, prevalent crime, fraud and corruption and a lack of adherence to internal controls.
He said the power utility had implemented interventions to remedy these challenges including the execution of its generation recovery plan, the appointment of strong leaders at all levels, improving revenue collection and driving cost-efficiency and enhanced governance and controls to eradicate crime, fraud and corruption.
Eskom chief executive Dan Marokane said 2023-24 was a year “characterised by intense and frequent load-shedding” with planned energy availability at its lowest, hovering around 55%.
“We were not anywhere close to our aspirations in terms of emissions performance, safety performance, and not anywhere close to what we desire to do as a business. The increase in energy losses translates to losses associated with illegal connections and electricity through tokens. The net result of that, despite the 18.5% increase in tariffs for that year, is that we suffered a net loss before tax of R25.5 billion,” he said.
Marokane said Eskom had received a qualified audit report stemming from the past two to three audits, which was “unacceptable”.
“It cannot be that we continue to have a repeat of this. And the board has asked us as management to turn the corner in as far as this aspect is concerned. As much as we have now stamped out load-shedding, we are going to turn the business upside down in terms of ensuring that we adhere to the controls that we have,” he said.
Marokane said the executive leadership had come up with an intervention plan to respond to the irregularities raised by auditors.
“This year was a painful year, but it was also a building year in terms of our path towards recovery. This is a year when the generation recovery plan was instituted. A lot of effort went into investing both in maintenance expenditure and in human resources — this was critically required to enable execution,” he said.
“It’s also here where we started seeing the government debt relay programme kicking into action. The certainty that arises from that gave us the ability to plan better and to do the deep maintenance that was required in the financial year.”
Eskom group chief financial officer Calib Cassim said earnings before interest, taxes, depreciation and amortisation increased by 26% to R43.4 billion.
He said as the company executed significantly increased planned maintenance to operationalise the generation recovery plan, load-shedding increased to 329 days from 280 days in the previous year, while diesel usage for open-cycle gas turbines to keep the lights on rose to R33.9 billion, and sales volumes declined 3% year-on-year. High levels of electricity theft led to an estimated R23 billion revenue loss.
A loss after tax of R55 billion occurred mainly due to the derecognition of a deferred tax asset of R36.6 billion. This was triggered by the separation of the National Transmission Company South Africa on 31 March and it being deemed unlikely that the remaining business would generate sufficient taxable income within the next five years to fully use Eskom’s unused assessed tax losses.
He said Eskom still expects to return to profitability within the period of its current corporate plan ending March 2029.
“It is encouraging that we recorded a lower loss before tax, despite the momentous operational challenges we faced. I believe that we have reached a turning point and that the 2024 financial year will be remembered as the year in which we laid the foundation for future success,” Cassim said.
He said Eskom’s current debt securities and borrowings were R397 billion as at 31 October.
“We must reach a position where we can service our debt obligations without further government support, however, the national treasury has acknowledged that its debt relief and Eskom’s efficiency efforts alone are not enough to enable Eskom’s long-term financial sustainability — it must be supported by appropriate tariff increases, with measures to address affordability for vulnerable sectors, and a sustainable solution to the municipal arrear debt challenge, with the arrear debt owed to Eskom expected to reach R110 billion by March 2025,” Cassim said.
Marokane highlighted Eskom’s performance over the past eight months and the utility’s performance forecast for 1 April 2024 to 31 March 2025, saying it could post a profit of more than R10 billion for the financial year. This is based on the current 12.7% tariff hike that was implemented earlier this year.
He said it was “a crucial step” that consumers migrate to paying “cost-reflective tariffs” to ensure Eskom’s financial sustainability and to foster a competitive future electricity supply industry that attracts investment and enables market players to operate and maintain their assets in a reliable state”.
“An inadequate tariff path will continue to constrain Eskom’s financial position, leading to insufficient investment to sustain and expand our infrastructure, thereby perpetuating past operational challenges. It may also necessitate further reliance on government support beyond March 2026,” he said.
He said Eskom’s focus remains on further reducing unplanned unavailability, to reach an energy availability factor level of 70% during March 2025 and an average energy availability factor of around 62% for the year, by implementing its generation recovery plan, which includes extensive planned maintenance.
Electricity Minister Kgosientsho Ramokgopa said it was “worrying” that the release of the audited financial statements had been delayed as this undermined the social contract of transparency with the public.
He lamented the fact that Eskom had uncovered more than 1 million pre-paid customers who have not been paying for electricity.
“I guess that is a moving target. It’s just an illustration, perhaps, of the failures of controls. I think it’s important that Eskom must invest a lot of energy in addressing issues of cybersecurity, the undermining of the guardrails that protects Eskom, from those who want to attack it,” he said.
Ramokgopa congratulated Eskom’s leadership for reducing load-shedding and for achieving a more positive outlook for 2024-25 saying this illustrates “that indeed we’ve got the capacity and capability in the country to address what essentially is a challenge of existential proportions”.
“This work of Eskom contributes in large part to the realisation of the Energy Action Plan, which is a comprehensive articulation by the government on how we’re going to resolve and attend to the challenges presented by load-shedding,” Ramokgopa said.
He said the load-shedding experienced during the 2023-24 financial year had had a devastating impact on the economy and the financial performance of the power utility.