Dark times: Eskom Has A R50 Billion Shortfall

jabu mabuza
A YouTube screengrab shows Eskom chief financial officer Calib Cassim.

JOHANNESBURG – Eskom on Thursday said it needed to come up with a way to address the R50 billion shortfall it had accumulated this past financial year.

The power utility projected that it would lose R20 billion by the end of the year.

Its operating costs are over R30 billion.

Eskom’s CFO Calib Cassim said it was getting harder to service its debt and a plan is needed.

“As we move down the timeline and we embed those savings, that part will reduce based on what Eskom can contribute to the party. “

Meanwhile, the cash-strapped state-owned enterprise board chairperson Jabu Mabuza said the power utility’s debt still stood at roughly R454 billion.

MUNICIPALITIES OWING ESKOM

At the same time, Mabuza said the debt by deflating municipalities continued to rise and put a massive financial burden on the power utility.

Eskom threatened to cut power to three municipalities in Bloemfontein next week over their failure to settle their bills. President Cyril Ramaphosa recently called on all citizens to cough up so the cash strapped state-owned enterprise could service its debt.

Below are key facts about Eskom, its financial problems and the planned reforms.

GENERATION SHORTFALL

Eskom, established in 1923 under white minority rule to serve the mining sector, is in the top 20 power utilities in the world by installed generation capacity.

But it has struggled to meet demand since 2007, with several bouts of severe power cuts.

The utility now has a total nominal capacity of around 44,000 megawatts (MW), with 36,500 MW of that coming from 15 coal-fired power stations.

Alongside its creaking coal fleet, Eskom operates Africa’s only nuclear power plant near Cape Town, as well as gas, hydropower and wind plants.

It generates more than 90% of South Africa’s power and 40% of the electricity on the continent.

Eskom is scrambling to complete two new mammoth coal plants, Medupi and Kusile, which have been beset by huge cost and time overruns.

DEBT, LOSSES AND BAILOUTS

Eskom is struggling to service R450 billion ($30.5 billion) of debt, which it ran up because of soaring expenditure on Medupi, Kusile, coal and salaries.

Executives also blame years of low tariff awards, which have not allowed the company to recover its costs, and corruption scandals under previous management.

It made a R20 billion loss in the year to the end of March and expects to make a similar loss in the current financial year.

The government has promised to inject R59 billion into the utility in 2019/20 and 2020/21, in addition to R230 billion of bailouts spread over the next decade.

Analysts say even those bailouts aren’t enough to make Eskom sustainable in the long term.

An outline of the government’s Eskom plan unveiled in October gave no details of further debt relief, but finance ministry officials have said they are weighing options including swapping Eskom debt for government bonds and moving its debt into a special purpose vehicle.

THREE-WAY SPLIT

President Cyril Ramaphosa pledged in a state of the nation speech to split Eskom into three entities for generation, transmission and distribution to make it more efficient.

The government says it will prioritize setting up a separate transmission unit within a state-owned Eskom holding company by the end of March 2020, while the legal separation of all three entities should be complete by the end of 2022.

The aim is to create greater transparency over performance, improve management focus and minimize corruption.

Some analysts are skeptical officials will follow through with their Eskom plans in full, given fierce opposition from labor unions and vested interests in the energy sector.

Eskom employs more than 46,000 people, which many analysts consider excessive.

Ramaphosa has promised Eskom won’t be privatized and that voluntary severance packages will be offered to staff instead of redundancies. Job cuts are a sensitive issue given unemployment is running at 29%, an 11-year high.

EWN

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