Eskom cuts costs as demand for electricity slumps; winter load shedding still on cards

By Paul Burkhardt and Mike Cohen

(Bloomberg) – South Africa’s indebted power utility is cutting costs as a nationwide lockdown causes electricity sales to plummet, further straining its already precarious finances.

Eskom, which provides about 95% of the nation’s electricity, has about R450bn ($25bn) of debt and couldn’t produce enough from its ageing plants to meet demand before the lockdown was imposed. While a shuttering of mines and factories provided some respite, enabling it to catch up on some maintenance and rebuild its coal supplies, its financial sustainability has been further eroded.

The utility will reduce planned capital expenditure by R22bn this year and is cutting personnel costs, with 184 senior executives having taken voluntary retrenchment packages, Chief Executive Officer Andre de Ruyter said on Thursday in an online presentation. Contracts with independent power producers are also being renegotiated, and the company is trying to curb other expenses, especially coal costs, he said.

Power demand has fallen by 6,000 megawatts to 11,000 megawatts during the lockdown, which began on March 27.

While just three days of power cuts are expected during the coming winter months, down from 31 anticipated prior to the lockdown, the system remains unreliable and unpredictable, and more severe outages could occur, Chief Operating Officer Jan Oberholzer said in the presentation. Unplanned plant breakdowns exceeded targets, despite an ongoing program to improve their reliability, he said.

Other highlights:

  • Eskom has 55 days of coal supply, which is more than adequate, and the quality of the fuel it has been receiving has improved.
  • The company is looking at selling some non-core assets, including its in-house insurance business, with any proceeds being used to reduce debt.
  • The Camden power station, which was shut in April because of concerns that a dam where it stores ash could burst, is expected to remain shut until the end of winter.
  • The utility is addressing its environmental issues.
  • Twenty-one Eskom employees have contracted the coronavirus.
  • Eskom has begun manufacturing face masks and hand sanitizer.