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Scandal hit Eskom slides into loss territory as power sales drop, debt slumps

By Paul Burkhardt

(Bloomberg) – Eskom Holdings SOC Ltd. reported a full-year loss as sales of power in Africa’s most-industrialised economy fell and as the utility’s debt measures worsened.

The electricity producer that generates about 90 percent of South Africa’s power reported a loss after tax of R2.3 billion ($171 million) for the year ended March 31 from a profit of R0.9 billion 12 months earlier, the Johannesburg-based company said in a presentation Monday. Sales declined 0.9 percent, while its gearing ratio, which measures debt relative to equity, dropped to 72 percent from 68 percent, it said.

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Eskom is under pressure to improve its financial situation as it faces declining demand for electricity amid tepid economic growth. The business has been at the centre of scandals involving the financing of transactions and awarding of contracts to firms linked to the Gupta family, who are alleged to have used their connections with former President Jacob Zuma to their benefit. Zuma and the Guptas deny any wrongdoing.

“Eskom continues to face significant financial and liquidity challenges,” the company said. This is due to the “high debt burden, low sales growth and increased finance costs. The auditors raised uncertainty that may cast significant doubt on the group’s ability to continue as a going concern.”

Chief Executive Officer Phakamani Hadebe, who started earlier this year, has pledged to improve governance as the first step in stabilising the business.

Pay negotiations with labour that started two months ago resulted in protests and power cuts after the utility said it couldn’t offer an increase to workers. Eskom backed down and has most recently tabled a three-year deal with raises of about 7 percent annually, compared with the current inflation rate of 4.6 percent.

Eskom depends on government support to service its R368 billion of debt. It has raised 22 percent of the funds it requires this year, the company said.


Comment from the Life After Coal campaign

Even without taking into account the health, environmental, and climate change costs of its pollution, Eskom’s 2017/18 financial results show that it is in dire financial trouble, largely because of the escalating costs of Medupi and Kusile and the rising coal costs. Studies support a few big interventions to drastically improve the situation.

We call for immediate action by the Department of Public Enterprises and other government departments to accelerate the phase-out of old, expensive, and non-compliant coal-fired power stations, and to stop building the last over-priced units at Kusile. Meridian Economics’ November 2017 report reached the “unavoidable conclusion” that Eskom “is still spending vast amounts of capital on a power station construction programme that South Africa does not need and cannot afford”. It found that decommissioning 3 stations and curtailing Kusile could lead to savings of between R15 and 17 billion – without affecting security of supply. The Campaign also continues to call for a meaningful programme for a just transition to a clean energy system, with social ownership to safeguard workers and communities.

The Department of Energy must urgently release the Integrated Resource Plan for Electricity and it must be least-cost. There is no room for costly private coal plants and no ‘carbon space’ for further emissions. The Energy Research Centre’s recent report demonstrates that the two proposed coal-fired power independent power producers (IPPs), Thabametsi and Khanyisa, would not only significantly raise the total energy system costs and enormously increase greenhouse gas emissions, compared to a scenario without the coal IPPs, but would have a negative impact on Eskom’s solvency, by making electricity unaffordable and “reducing the output of Eskom’s fleet, potentially accelerating the ‘utility death spiral’ in which Eskom already finds itself and putting the electricity supply industry – and thus the South African economy – at risk”.

Urgent steps must be taken to restore Eskom’s financial health. Ideally, it should be transformed into an organ of state that promotes clean, healthy, affordable energy for everyone – becoming the owner of significant renewable energy assets in the interest of all, of cheap, clean electricity for South Africans, including support for local and community ownership of renewable energy facilities.

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