Business Maverick

POWER CRISIS

Eskom’s woes worsen amid rising financial losses and debt

Eskom’s woes worsen amid rising financial losses and debt
A dilapidated sign outside the Eskom's Acacia electrical substation in the Monte Vista district of Cape Town. (Photo: Dwayne Senior / Bloomberg via Getty Images)

Eskom made a financial loss of R21.2bn in 2022/23, the power utility’s largest loss yet, and more than initially expected. Eskom’s debt levels have also worsened, preventing the power utility from raising money for its operations, including the increased maintenance of coal-fired power stations.

Eskom’s money woes are worsening as its financial losses and smothering debt levels are set to balloon, making it more difficult for the power utility to stem the tide of intensified blackouts across SA.

Eskom has not published its latest results for the 12 months ending March 2023, but National Treasury officials have provided a glimpse into the power utility’s financial situation during the period. And it looks grim.

Eskom made a financial loss of R21.2-billion during 2022/23, the power utility’s largest loss yet, and more than initially expected. The power utility had budgeted for a loss of R13.6-billion. But there is a catch to these figures as they have not been audited by Eskom auditors and might be adjusted after going through this process.

For example, the financial loss incurred by Eskom is a pre-tax profit, meaning that it doesn’t include the taxes that it still has to pay — inferring that its loss might be even larger than the stated R21.2-billion.

On Tuesday, an official from the National Treasury’s asset and liability division provided members of Parliament’s standing committee on appropriations with an overview of the performance of state-owned enterprises (SOEs), including Eskom.

Eskom’s debt levels have also worsened, preventing the power utility from independently raising money for its operations, including the increased maintenance of its coal-fired power stations to prevent the breakdowns that cause blackouts. Eskom’s gross debt securities and borrowings (or debt levels) increased to R439.1-billion during its 2022/23 financial year from R396.3-billion the previous year.

Eskom attributes the 11% increase in its debt levels largely to the impact of the weakening of the rand on its foreign currency borrowings as well as debt-raising activities. A weak rand makes it more expensive for Eskom to pay back the debt and interest on it, some of which is denominated in dollars.

A broken business model

Eskom’s financial situation arguably underscores that its business model is broken. Eskom’s net revenue grew slightly to R259.2-billion in 2022/23, up from the previous year’s R247.6-billion.

Eskom cannot generate more revenue from its electricity sales, making it difficult for the power utility to generate a profit or service its debt. It cannot generate enough revenue from the electricity tariffs that it charges users and that are approved by the National Energy Regulator of South Africa (Nersa). Nersa usually grants the power utility lower tariff increases than it asks for. In 2022, Eskom was granted an electricity tariff increase by Nersa of 9.61%, lower than the 20.5% it asked for.

Breakdowns at Eskom’s power stations are pushing the power utility to spend more money. One of Eskom’s big expenditures is on buying and burning diesel to run its open-cycle gas turbines (OCGTs), which are intended only for dire emergencies or use during peak demand periods. 

The OCGTs are used to make up for a shortfall in generation capacity when there are outages and breakdowns at Eskom’s coal-fired stations. During Eskom’s 2022/23 financial year, it spent R21.36-billion on diesel purchases, which was more than double the previous financial year’s expenditure.

Municipalities owe Eskom billions

Making Eskom’s financial situation worse is municipalities that owe it billions of rands for electricity — debt that continues to grow and isn’t being paid back.

“The non-payment of municipal and residential revenue continues to negatively affect Eskom’s profitability,” Treasury officials told MPs.

Total invoiced municipal arrear debt increased to R58.5-billion at year-end, up from the previous year’s R44.8-billion. A total of 61 municipalities have arrears debt of more than R100-million each. The offending municipalities are mostly in the Free State, Mpumalanga and North West.

Eskom’s sales volumes were affected by generation supply constraints, leading to load curtailment and load shedding, as well as prevailing economic conditions. After all, when blackouts occur, households and businesses are unable to buy more and access electricity.

Eskom’s sales volumes were 3.1% lower than budgeted and declined by 4.3% from the previous financial year. The deterioration in Eskom’s finances indicates that the power utility needs help from the government.  

During the 2022/23 financial year, Eskom received R21.9-billion in equity support from the government. The government has also committed to taking over R254-billion of Eskom debt over the next three years to provide the power utility with space to allocate more capital to the maintenance of its power stations.  

Read more in Daily Maverick: Government comes to Eskom’s rescue by taking over R254bn of its debt 

Eskom’s financial situation might get worse, considering that it is in the throes of wage negotiations with trade unions representing its workers.

Read more in Daily Maverick: Deadlocked Eskom wage talks to resume on 13 June, unions to consolidate demands

Trade unions are asking Eskom for wage increases that are above the consumer inflation rate, which will be expensive to implement and might further worsen the power utility’s financial situation. DM

Gallery

Comments - Please in order to comment.

  • George Daras says:

    If you take the R12B that is stolen every year due to corruption and the R12B to replace the loss, it gives you R24B and equal to the loss for the financial year.

  • STEVEN MILLER says:

    Just wondering about this line…
    “For example, the financial loss incurred by Eskom is a pre-tax profit, meaning that it doesn’t include the taxes that it still has to pay..”

    Why would there be tax to pay on a loss?

  • Lisa Botha says:

    With constant load shedding those customers who paid for their electricity, and who can afford it, are moving on to Solar, the only people that Eskom will have left are those who can’t pay. A constant downward spiral!

  • Rae Earl says:

    Does our weak and directionless president understand the message in this report by Ray Mahlaka? It has to be assumed that he hasn’t a clue so let’s extrapolate. The ANC has wrecked all our SOE’s in the course of its tenure as the ruling party. The country is now staring economic collapse in the face. We desperately need positive action based on sound business principles to kick-start our economy. Things like a free enterprise state, not one governed by the ruinous BBB-EE rules or minimum wage laws which suck life out of small businesses and exacerbate unemployment. We urgently need to have the protection of useless cadre layabouts ended and replaced by the hiring of qualified workers who are willing and able to do the jobs assigned to them. We need to protect our manufacturing industry and our substantial export markets. South Africa does not need a president who tells the West to go to hell because he and his misguided cabinet support a lost cause like Putin and his brigade. If the loud protests and finger pointing from the US, Germany, the UK, Japan, Italy, Spain, and the Scandinavians, are ignored, Ramaphosa’s blind support for Russia’s invasion of Ukraine will leave our country without the friendship we so desperately need if we’re to rebuild our economy. His legacy to this once prosperous nation will be to relegate it to the other dust bins of failed African states.

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