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