Eskom is broke and you will pay the price

Eskom flames under the burden of his debt of 419 billion rubles and seems to seek another government bailout.

This became clear when he presented his half-year results for the six-month period ended Sept. 30 at the Megawatt Park headquarters in Sandton on Wednesday.

The debt could reach 600 billion rand in the next three years. Eskom has already used 337 billion rand of its 350 billion rand public guarantee and could ask for new guarantees.

The electricity company recorded an 89% drop in net profit, from R 6.3 billion at the end of September 2017 to R671 million a year later. Calib Cbadim, chief financial officer of Eskom, recently appointed, told reporters that the loss for the full year could reach 15 billion rand, against 11.2 billion rands expected early in the year. exercise.

These results are part of a context of deteriorating operational performance. Eskom's chief operating officer, Jan Oberholzer, said during the event that "load shedding is a reality for the future".

During the period under review, Eskom generated operating activities amounting to 26.6 billion rand, which is 18.5 billion less than the 45.2 billion needed to service its debt. After debt service, this amount almost doubled from 23.2 billion rand at the end of September last year.

Debts in arrears

Personnel costs and primary energy costs each rose by 12%, while municipal arrears increased by 25% to R17 billion.

Sales volumes decreased by 0.8%, resulting in an increase in revenues of only 2.7%, despite a 5% increase in tariffs.

Eskom President, Jabu Mabuza, made it clear that "Eskom is not sustainable, as it was designed and observed today."

He added that Eskom was stuck in a permanent disaster situation and that its income was structurally limited. Expenses have exploded due to inefficiencies and electricity rates do not reflect costs.

The president of Eskom, Jabu Mabuza

The problem is that customers can not afford cost-reflective tariffs, he said.

He added that without significant changes, funding costs would increase further and that the utility might not be able to continue operating.

Eskom does not sell enough electricity and does not collect the electricity revenues it has managed to sell, Mabuza said. He spends more and more just to make payments on borrowed money.

The council has prepared an "ambitious" recovery plan and is currently involving the government in this regard. He met the Minister of Public Enterprises, Pravin Gordhan, and briefed President Cyril Ramaphosa. He has yet to meet with the ministers of Energy and Finance and will also initiate discussions with the unions, said Mabuza.

He pointed out that Eskom's problems could not be solved by the company alone, saying that the public service had to "work with the government to reduce Eskom's debt and debt service costs."

"It's going to hurt," he said. "The question is what kind of pain."

The biggest creditor

When asked if converting debt into equity was an option, Mr Mabuza said that Eskom's board of directors initially thought that it could work, but that it was not. 39 is aware that its main creditor – the Public Investment Corporation (PIC) – would need a return on equity for public retirees.

"He can not invest in a deficit entity," he said; if the IPC does not invest, why other donors?

"There are other ways, like a bailout or an injection of equity," he added.

Mabuza further stated that there were "few things that can be sold" in terms of badets and that all non-Medupi and Kusile power plants operate at an average margin of 21% of the total. Ebitda (earnings before interest, taxes, depreciation and amortization), which is not attractive to investors.

Image: GCIS

Medupi and Kusile operate at an Ebitda of about 60% and are salable, but Eskom needs them to produce electricity. In addition, Eskom pays more than double the amount it should pay for the construction of these two plants. This idea is therefore a "no-starter", said Mabuza.

The sale of Eskom Finance Company is long overdue, but that will not change Eskom's position, he said.

Eskom's problem is the size of its debt and its ease of service, said Mabuza, adding that "if we could get some relief from the burden," the ease of management would become less problematic.

He pointed out that "someone" had to pay the debt: "The consumer or the taxpayer had to pay. And it could be the same person!

Asked about the minimum amount of Eskom's debt burden reduction, Eskom CEO Phakamani Hadebe said it will depend on the determination of the current tariff of the energy regulator, Nersa. Eskom has requested a 15% rate increase each year for the next three years.

Nersa will hold public hearings on the application in January and will announce its decision on March 1 of next year.

• This article was originally published on Moneyweb and is used here with permission.