Eskom’s operational and financial performance are set to worsen further during its latest financial year, which runs until March 2024, with the power utility still being in a lossmaking position while overspending on its diesel budget to momentarily keep the lights on.
Eskom expects to record another financial loss, of R23.2-billion, during the 12 months ending March 2024 mainly due to the poor performance of its power stations, which have subjected South Africa to record electricity outages.
On Wednesday, Eskom unveiled its financial results for the six months ending September 2023, a period in which the power utility managed to eke out a profit of R1.6-billion (though down from a profit of R3.8-billion around the same time in 2022).
Historically, Eskom’s financial performance is much better during the six months ending September, which fall in the winter months, as it sees an increase in electricity demand, translating into higher revenue from electricity sales.
However, Eskom’s entrenched problems such as high debt repayments and municipalities not paying their electricity bills always push the power utility to record a loss by the end of its financial year. Eskom will extend its money-losing streak in 2024 as during its 2023 financial year, it posted a financial loss of R23.9-billion, which was the largest in its 100-year operational history.
Read more in Daily Maverick: Eskom posts record R23.9bn financial loss
Another factor that inhibits Eskom from being profitable is the money it spends on diesel to stave off higher stages of blackouts when its coal-fired power plants break down. Eskom burns diesel to run its open-cycle gas turbines (OCGTs), an emergency generation fleet that is intended only for dire emergencies or use during peak demand periods.
Eskom had set aside a budget of about R27.9-billion to spend on diesel during the year ending March 2024. In its financial result documents released on Wednesday, Eskom forecast it would spend R32.2-billion on diesel — implying that it will spend R4.3-billion more than it initially budgeted. This would create a situation in which Eskom puts pressure on the government for financial support to help the power utility secure more money to fund the diesel budget overrun.
Eskom said its reliance on OCGTs and budget overruns on diesel were expected to continue until the performance of its power plants and SA’s electricity generation capacity improved.
Eskom had to rely on OCGTs because 2023 is shaping up to be the worst year for power disruptions. There have been more than 280 days of blackouts in 2023, which is substantially worse than the 65 days recorded in 2022.
Breakdowns at Eskom power stations and not generating more electricity inhibit the power utility from making more money from electricity sales. Underscoring this is that during the six months ending September 2023, Eskom saw its sales volumes drop by 6% to R91.87-billion. However, Eskom’s overall revenue grew by 9.5% to reach R158.6-billion due to the electricity tariff increasing by 18.65% from 1 April for consumers who are directly supplied with electricity by the utility.
Municipal electricity debt and Eskom’s debt
Another pressure point is Eskom’s inability to recover electricity payments from municipalities. Arrear municipal debt has continued to escalate to a whopping R70-billion by September from R58.5-billion in March. The offending municipalities are mostly in Mpumalanga and the Free State.
The National Treasury and Eskom have launched a scheme in which the arrear electricity debt of municipalities will be written off over the years, subject to certain conditions, including keeping up with current account payments to Eskom. A total of 52 municipalities have received approval or conditional approval from the Treasury for municipal debt relief by September, Eskom said.
Debt and interest costs are still a big problem for Eskom, weighing on its money-generation potential. Its debt stock swelled to R442.7-billion in September from R423.9-billion, mainly due to the weakening rand, especially on its foreign currency-denominated debt.
In February, the government came to Eskom’s rescue by taking over a portion of its debt (R254-billion), giving it breathing room to fund its operations instead of servicing hefty borrowings. Of the R254-billion, Eskom received R16-billion in August, R20-billion in October and R5-billion in December 2023.
From a leadership perspective, there is a modicum of stability at Eskom as the power utility has a new CEO in Dan Marokane.
Read more in Daily Maverick: Can new Eskom CEO Dan Marokane fix broken power utility mired in corruption?
The employment contract of Eskom’s group chief financial officer, Calib Cassim, (who also acted as group CEO) ends in December 2023. Cassim has been in discussions with the Eskom board to renew his employment, with the intention of returning to the chief financial officer position. DM
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Who or what are you going to blame this time my ANC comrades? Apartheid? Covid? De Ruiter?
Or are you going to truthfully acknowledge that it’s entirely on you.
The Communist agenda grows under the guise of democracy(but actually they plan to destroy the whole country)
From bad to worse , and now the new hugely expensive nuclear project which will only bring results years from now. Where will the money come from?. Us getting poorer by the day and the tax basis shrinking?
Please, Gwede! Your country needs you at Eskom. You said 18 months ago that Eskom’s problems can be sorted in 6 months. We are THREE times over that. We will pay you triple your current salary and if you tell us what you embezzled in the Zuma years, we will triple that too and we will ask Ramaphosa to give you presidential pardon and to act as state president for a weekend so that Mokonyane can sit on your presidential staff too.
LOL, I’m waiting for them to announce an awards ceremony at a 7-star venue to hand out the Christmas bonuses.
Did not Ramokgopa say a month back that unused diesel budget should be diverted to ‘worker bonuses’……he really does not have a clue, fits in well in the Cabinet of dimwits!
I am wondering about the convoluted ideas around writing off Municipal Debt ….. somebody pays for it even if lack of Government spend elsewhere. But, what likleihood is there of these near collapsed municipalities paying even their current debt, electricity or otherwise.
It’s a difficult one: Eskom supplies power knowing that it won’t get paid by the local authorities; the municipalities supply power knowing they won’t get paid by large swathes of consumers, so what’s the point of continuing to supply it? It would be a much better solution to provide subsidised (not free) solar panels and battery storage to indigent communities, which they pay off over a period through mobile banking. This has been rolled out in East Africa, very successfully from my understanding. But it requires a couple of things:
First, consumers to realise the benefits of paying for power (and the disadvantages of not having regular power) so that they buy into the system.
Second, it requires Eskom and government to take the massive leap to understand that giving stuff away for free in perpetuity gets you to where you are now: broke, broken and bleeding the country to death. Once this is realised, you can phase in off grid solutions at a fraction of the cost of maintaining grid power into communities not paying for it, and save yourself billions in not having to constantly replace stolen or damaged infrastructure and also save billions as you phase out the worst performing power stations, as demand will be lower from the grid.
Problem is, both these ideas require political courage and proper planning – both scarcer than a pothole free road in Joburg!
Dee Bee-the other problem is that there is a culture of zero maintenance among many of the people who would qualify for a subsidy, so solar hardware would quickly fall into a state of disrepair. I remember driving past a community somewhere in Jhb a few years ago and they had solar geysers on roof tops, the majority of which had missing tanks, broken supports etc.. A subsidy has to be a stop-gap with strict rules but soon people have to pay for things otherwise they don’t value them. Simple reality.
Yip, it is a problem, and not one that I have any answers to. Bottom line though, is that we can’t carry on with the situation the way it is. There have to be more innovative ways of doing it than simply providing free electricity and water regardless of the intention or ability to pay for it. We’re where we are now because of the notion that you can simply provide freebies (and/or ignore illegal connections) and just increasingly squeeze those who do pay – every time you do that, you push more into the unpayable category. But you’re right, part of the solution is the need for a culture of maintenance.
Who gets free electricity when they don`t pay? As far as I know, when you do not pay your bill, your electricity supply should be cut off and will not be reinstated until you pay up.
In theory…
Absolutely grotesque abuse of power (sorry!) and burning money whilst Mantashe ensures that new power is a dream with his increasingly abusive gordian knot of red tape, feet-dragging and endearment to hopelessly corrupt powership deals. He should be tried for treason.
Imagine what the country could do with R32bn, instead of burning it to keep the lights flickering erratically, all the while keeping us in the dark about the true state of our coal fleet. Actually, we know they’re completely stuffed, hence the need to use emergency power every day. And the Minister of Electricity? He has made not one ounce of difference to the performance of our power stations since Cyril the Spineless created yet another conflicting, contradictory unit in the super-presidency to pretend that he’s large and in charge. Pathetic.
R32 billion on diesel , money for that , yet our mega stations barely work .
The one is not even half built after all this time , 3200 Mw .
Munis that do not pay is an problem , I assume they get paid by the users , so make payment direct to Escom . Cut out the middle man ! Yet how to supply those who do pay ?
Put the Munis into administration , no wage increases or bonuses !
Same with Escom , a bloated workforce produces way less power !
Forgive my not being a CA , Escom made a small profit R1.6 billion , yet in 2023 made a loss of R23.9 billion ?
That is just the diesel budget . 🙂
Just what is the 13 -17 Mw that seem to be permanently ‘ unavailable’ .
As for the other breakdowns , scant details on that and exactly why so many and so often , clearly repairs / maintanence is not being done correctly .
A cash cow for the repair contracts !
Given the catastrophe we’re facing, we should have open access to the performance of every turbine at every station – and who gets the ‘repair’ jobs, and what they’re charging. It would be interesting to see!
A fundamental requirement for any business to be and remain solvent is to be paid for services rendered and goods supplied. Solve that and ESKOM will be back to not being in deep debt. Economics 101 which, given that a few of our misters have a degree in it, should not be that difficult to understand.
This whole loadshedding thing is all about elections, guy, we won’t need to panic about loadshedding anymore, miraculously it appears that we have sufficient power. It’s all about trying to keep the citizens in check. I knew they must have burnt most of the diesel over periods they declared sufficient power was available.
Why would we need this nuclear plant, only to be completed in 2040 (delays are inevitible) when they should be opening bid windows for green energy. In that time we could easily saturate the country with sufficient electricity, if windows are identified, and apporved, enough of this red tape