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But vows to keep debt at sustainable levels.
n a major shift, Eskom in its planning assumes that tariff increases will in future not exceed 10%. Picture: Gallo Images
Power utility Eskom is ready to resume its borrowing programme once the current government debt relief programme of R254 billion, which came with a ban on new borrowings, has run its course at the end of the current financial year.
It has however vowed to keep its borrowings below the limit of R300 billion, a level it hopes to reach in the financial year ending on 31 March 2030, down from R411 billion at the end of the current financial year.
Source: Eskom
Laying out its capital and finance plan for the next five years before the parliamentary portfolio committee on energy and electricity on Friday (25 April), Eskom made it clear that it wants to keep its total outstanding borrowings at a sustainable level, which it says is below R300 billion.
Five years ago, former Eskom CEO André de Ruyter said Eskom needed to halve its debt to R200 billion to be sustainable.
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Peter Attard Montalto, MD of financial consultancy Krutham, says: “Eskom’s future debt plans after the bailout ends are slowly becoming known but it would help creditors and markets for there to be more transparency such as on how it thinks its debt carrying capacity is higher, how it will fund and how unbundling will proceed including what changes to holdco loan documentation is needed.
“Eskom has not given any sort of detailed market update for far too long.”
The government debt relief came after Eskom found itself so deep in debt that it was unable to keep up with its commitments without assistance from the fiscus. Government agreed to the R254 billion package, subject to several conditions, including a ban on further debt, to restore Eskom’s sustainability.
It was dispersed over three years, the current year being the last.
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The numbers for the first nine months of the current financial year that Eskom showed lawmakers testify to a marked financial improvement over the previous financial year, which was one of Eskom’s worst ever.
On the back of its improved plant performance that led to a big reduction in load shedding, Eskom’s sales volumes improved by 3.6%.
Together with the 12.74% tariff increase, this resulted in a 16% improvement in revenue, while primary energy cost shrunk by 17% thanks to the reduced reliance on diesel-gobbling open-cycle gas turbines.
Its profit before tax improved from a loss of R10 billion in the previous corresponding period to a R34 billion profit by December 2024, and outstanding securities and borrowings reduced from R439 billion to R409 billion.
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Considering the lower-than-expected revenue allocation it got from the energy regulator Nersa, Eskom plans capital expenditure of R321 billion over the next five years.
The largest portions of the capital spend will be for generation (R140 billion) to fund new gas and renewable energy projects, and transmission (R133 billion for the transmission development plan.)
Distribution’s share of R44 billion will be frontloaded over the next three years to fund the roll-out of smart electricity meters in an effort to curb electricity theft.
Eskom has reduced its operating budget by R50 billion spread over five years, with cuts mainly from the primary energy spend.
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It will increase new borrowings from the 2028 financial year, amounting to R75 billion, but maintaining the R300 billion limit.
Source: Eskom
In a major shift from previous revenue applications, Eskom in its planning assumes that tariff increases will in future not exceed 10%.
Average tariff increases for FY26, 27 and 28 have been set at 12.74%, 5.36% and 6.19% respectively. For the current year alone it wanted 36.15%.
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The big concern remains the growing municipal debt to Eskom.
At the end of March this amounted to almost R100 billion – representing 33% growth from a year before.
Eskom CEO Dan Marokane said the utility has now accepted that the National Treasury municipal debt relief plan, which offered a debt write-off to municipalities over three years, provided they comply with strict conditions, has failed.
Of the 71 municipalities that were approved for participation in the programme, only 16 were considered compliant or were still within the grace period to restore their compliance by the end of February, according to National Treasury.
Fourteen achieved the first debt write-off, which totalled R3.5 billion, while 60 were served with letters of non-compliance.
Marokane said Eskom wants the support of National Treasury to make it mandatory for those municipalities that are in arrears to enter into Distribution Agency Agreements with Eskom.
These agreements would give Eskom the right to take over the electricity distribution functions in these municipalities.
This would include metering, billing and revenue collection. Eskom would retain the amount owed for bulk purchases and pay the balance over to the municipality.
In addition, the amounts national government pays municipalities to compensate them for free basic electricity provided to indigent consumers will be paid directly to Eskom. The reason for this is that municipalities use it for other purposes instead of paying their Eskom bills.
This article was republished from Moneyweb. Read the original here.
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