Eskom keeps the lights on and sees profits on the horizon, but serious financial and governance problems persist

Is Eskom’s operational and financial situation finally turning around after the power utility consistently recorded billions of rands in losses, relied on taxpayer-funded bailouts for survival and broke its promises of ending blackouts for 16 years?

Eskom’s management — led by new CEO Dan Marokane — believes the power utility is showing signs of recovery and is beginning to overcome its “painful” past of underperformance.

However, Eskom numbers still point to a power utility that is in deep financial trouble — and its full turnaround will be a long haul.

On Thursday, Eskom released its financial results — nine months late. The power utility reported a loss of R55-billion for the year ending 31 March 2024.

The R55-billion financial loss is the largest Eskom has registered in its 101-year operational history. The mega loss was because of complex accounting standards and the treatment of tax in Eskom’s financial books relating to the reform initiative of breaking up the power utility into three parts (generation, transmission and distribution) — starting with its transmission business being hived off in July 2024.

The transmission business has been profitable and, in the past, it paid extra taxes to the government, which Eskom could use to reduce its future taxes/payment obligations.

Separating the transmission business means that Eskom can no longer use the tax reduction benefit, so it had to be removed from its financial books and forced the power utility to derecognise a deferred tax asset of R36.6-billion.

Eskom believes it won’t make enough money in the next five years to use up the extra taxes the hived-off business has already paid. So, the derecognised deferred tax asset of R36.6-billion (linked to its transmission business) contributed to Eskom’s R55-billion financial loss.

The unbundling of the transmission business and treatment of tax aside, Eskom reported a financial loss of R25.5-billion, much lower than the loss (before tax) of R34.5-billion during its 2023 financial year.

Return to profitability

At the Eskom results presentation, board chair Mteto Nyati said it was “the last time” the power utility would unveil a horror show of numbers. The power utility is forecasting a profit of more than R10-billion for its current financial year, which runs until March 2025.

The last time Eskom recorded a profit was in 2017. It has since pencilled in cumulative financial losses of R160-billion, while it received more than R250-billion in taxpayer-funded bailouts.

Eskom generates its revenue from electricity sales. It sells less electricity, and, in turn, generates less revenue when it cannot supply electricity. This has been the case with unprecedented load shedding of 329 days during the year that ended on 31 March 2024 (compared to 280 days in the previous year). During the year, electricity sale volumes fell by 3% but revenue increased by 14% to R295.8-billion because ​​electricity tariffs increased by 18.65%.

Marokane said the fading of the electricity crisis — as seen in no load shedding for more than six months — had improved the outlook for the power utility’s financial situation. Marokane and his team have increased planned maintenance and improved the monitoring of power stations and immediately addressed breakdowns when they occur.

However, Eskom is not ready to declare a permanent end to load shedding.

Its electricity generation capacity would first have to improve with the return online of units at power stations including Medupi (Unit 4), Kusile (Unit 6) and Koeberg (Unit 2). The return of these units could add 2,500MW to Eskom’s generation capacity. If this happens, the power utility could declare an end to load shedding by March 2025.

Now that Eskom can generate and supply electricity, it expects electricity volumes to grow by between 2% and 3% by March 2025. It no longer spends billions of rands to buy and burn diesel to run open-cycle gas turbines at Ankerlig and Gourikwa that stave off higher load shedding stages. During the year, Eskom spent R33.9-billion burning diesel, up from R29.6-billion in the previous year.

Its expenditure on diesel was down by R11.9-billion compared to last year, which should help the power utility deliver a profit of R10-billion.

“We are nine months into the current financial year and there is nothing that suggests to us that these numbers cannot be delivered,” said Marokane.

Municipalities not paying for electricity  

Despite this rosy picture, Eskom is still broken in many areas. It is losing the battle to recover electricity payments from municipalities.

Arrear municipal debt has continued to escalate to unsustainably high levels, reaching R74-billion by the end of the reporting period. By November, this debt had snowballed to R95-billion, said Eskom’s chief financial officer, Calib Cassim. The offending municipalities are mostly in Mpumalanga and the Free State.

Electricity Minister Kgosientsho Ramokgopa said Eskom should make peace with the possibility of it never recovering the debt from municipalities. His department has intervened in the matter and is working on ways to get municipalities to settle their electricity debt.

The National Treasury and Eskom have launched a scheme in which municipalities’ arrear electricity debt will be written off over the years, subject to certain conditions, including keeping up with current account payments to the power utility. However, this scheme has bombed, as out of 71 municipalities that participated in the scheme, only 23 complied with current account payments.

Another pressure point for Eskom is its smothering debt and interest costs, which are weighing on its money-generation potential. By October, its debt stock reached R397-billion, and it paid about R90-billion every year in interest rates, largely due to the weakening rand.

Governance problems 

There are still big governance problems at Eskom.

Two governance issues resulted in delays with the publication of Eskom results.

First, Eskom has discovered that some of its staff were colluding with illicit operators in fraudulent sales of prepaid electricity tokens through its online vending system.

“This matter required a forensic investigation to establish how it happened. The investigation is still going on. This fraud can only be possible through collaboration with people internally in the business,” said Marokane.

Underscoring the problem is that electricity theft at Eskom reached 13.9 terawatt hours (TWh) during the year, which is more than the 13.2TWh lost to load shedding.

Second, Eskom auditors have raised concerns about the power utility’s reliance on government bailouts for survival and the out-of-control arrear municipal debt. These matters created a “material uncertainty relating to Eskom’s ability to continue as a going concern”, warned the auditors in Eskom’s financial statements. The “going concern” test is one that companies must pass to secure a clean bill of health from their auditors.

“We continue to have challenges at Eskom, especially weak internal controls. The Eskom board met two days ago and sent a strong message to management that we have to make sure we strengthen internal controls,” said Nyati. DM