‘Time for excuses over for Eskom,’ says Cassim as loss doubles

Delivering its annual financial results two months late, on Tuesday (31 October), Eskom revealed that it had doubled its loss of the previous year to almost R24 billion in the financial year ended 31 March 2023.

This is despite an increase in revenue thanks to a 9.61% increase in tariffs.

While consumers had to dig deeper in their pockets, lower sales due to unprecedented levels of load shedding and load curtailment and eye-watering expenditure on Eskom-owned and private open-cycle gas turbines, offset the higher revenue.

With five months of the current financial year left, a similar loss is expected for FY2024. Thereafter, however, the results are expected to improve considerably as the impact of the government debt relief will be starting to flow through.

Eskom interim CEO Calib Cassim said “the time for excuses for Eskom and its staff is over”.

“We now need to deliver.”

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Eskom financial results: Net loss position

The decline in sales volumes was seen across all sectors, with rail down 22%, international sales down 14%, sales to households down by 13% and the agricultural sector by 11%, Eskom reported.

Its industrial (-1%) and mining customers (-1%) were less affected due to favourable commodity prices driving higher production.

Diesel impact

The unit costs of electricity generated by open-cycle gas turbines (OCGTs) increased by 49% for those owned by Eskom and 59% for those owned by independent power producers, largely due to the increase in diesel prices.

“Diesel production sources account for 19% of total primary energy cost but only 2% of total production; use of diesel is necessary but unsustainable,” Eskom noted.

It said the average diesel price increased from around R18 per litre to R23 per litre over the reporting period.

Despite the increased use of OCGTs, load shedding increased dramatically.

Load shedding

Cassim said the announcement of government’s R254 billion debt relief programme has enabled Eskom to plan ahead with more certainty for maintenance that requires spares with long lead times. This is starting to show in improved performance of its generation plant.

Eskom has already received R36 billion of the allocated R78 billion in the current financial year. In FY25 a further R66 billion is expected and in FY26 government has allocated R40 billion in cash and will take over R70 billion of Eskom’s debt to complete the package.

The allocations come as loans that will be converted to equity if Eskom complies with the conditions set by National Treasury, including a ban on new debt and limitations on capital expenditure.

If it doesn’t comply, Eskom will have to repay the loans to government.

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Eskom unbundling update

Regarding the unbundling of the utility, new Eskom chair Dr Mteto Nyati said on his first day in the job the board is looking for three new candidates for the board of the National Transmission Company of South Africa (NTCSA) as some of the candidates listed previously are no longer available.

Of the three units:

• Generation recorded the biggest loss before tax of R34.5 billion;
• Transmission showed a loss of R1 billion; and
• Distribution showed a profit of R3.5 billion.

Cassim said lender consent for the unbundling is expected to be finalised within a month.

The separation of the distribution division is in progress.

Cassim further disclosed that after the unbundling of transmission and distribution the current Eskom will become the generation business, and a new holding company will be established to among other things, house the debt, which will be allocated to each unbundled subsidiary through a mechanism such as inter-company loans.

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Eskom CEO

Cassim, who has been interim CEO since the departure of André de Ruyter in February, said he is in negotiations with the board about what happens when his contract comes to an end at the end of December.

Public Enterprises Minister Pravin Gordhan has promised that Eskom will have a new CEO by then, and Nyati confirmed that the board has gone through applications it received and submitted the names of three appointable candidates last week.

Peter Attard Montalto, MD of Krutham (formerly Intellidex), said Cassim certainly deserves praise for flying under the radar and largely implementing the De Ruyter plan with board backing and without drawing the same political controversy. This was of course, aided by the National Energy Crisis Committee and massive bailouts, he added.

“Still, the losses are eye-watering but a result of lower tariff awards and more investment given space opened up by the bailouts, which are starting slowly to bear fruit in terms of operational stabilisation.

“There is still a long long way to go however to properly define the end point for Eskom as a market-enabling transmission-led group and the challenges of unbundling are now more apparent with little progress substantively in the last year on this.”

This article is republished from Moneyweb under a Creative Commons licence. Read the original article.