‘Technically bankrupt’ Eskom’s lack of strategy worries Outa

The Organisation Undoing Tax Abuse (Outa) has welcomed parliament’s Public Enterprise report on Eskom which implicates previous ministers Lynne Brown, Malusi Gigaba and others, but says it remains deeply concerned that South Africa’s principal electricity supplier does not have a sustainable business model or a comprehensive financial plan to claw itself out of the debt hole it is currently in.

In a statement, Outa says the power utility’s appointment of new CFO Calib Cassim may offer some stability and comfort that the rot will stop.

However, it also notes “declining revenues which inhibit [Eskom] from turning into profitability or controlling its ever increasing operational costs.”

“If Eskom was a private company, it would either be under business rescue or in liquidation as we speak, given the reality that Eskom is technically bankrupt,” says Ronald Chauke, Outa’s energy portfolio manager.

While presenting their 2018/2019 interim results this week, Eskom revealed that their 2007 debt of R40 billion has grown to R400 billion and is estimated to exceed R600 billion in the foreseeable future. In addition, Eskom’s huge staff complement including fixed term contractors has increased to 48 628 in 2018 from 47 658 in 2017, costing South Africans R29.5 billion in March 2018.

Outa says it “is concerned that there appears to be a lack of urgency and no holistic and integrated long-term strategy to help with turning around the power utility, and ultimately lower prices for the public. While Dr Jabu Mabuza’s nine-point plan is commendable in addressing immediate problems, the 2035 strategy he promised the public earlier this year is still needed.

“The nine-point plan is merely fire-fighting by the Eskom executive who should have by now developed a comprehensive future roadmap that will take the utility to a financially sustainable path,” added Chauke.

The statement continues: “What is even more concerning is the fact that the energy availability factor (EAF) was 75.01% in September 2018, below Eskom’s target of 78%. This further dropped to 74.2% in October 2018.

“The impact of this decline in EAF has resulted in the increased utilisation of emergency resources such as open cycle gas turbines which are diesel-powered and have already cost Eskom R572 million to date and projected to cost up to R1 billion by end of the financial year.

“Profit before tax has declined from R8.9 billion (Sept 2017) to R1 billion on 30 Sept 2018, while sales volumes are also down by 0.8% and revenue was up by 2.7% on the back of tariff hikes.

“This massive decline in profit, is a precursor for huge losses that one can expect at the end of the financial year.”

Outa adds it is also very concerned about the 25% increase in 6 months of municipal arrear debt (including interest) to R17 billion (it was R13.6 billion in March this year), calling it probably the biggest issue facing the SOE right now.

“It is imperative that Eskom develop and publicise a long-term plan that includes a sustainable business model that will contribute to South Africa’s economic growth and provide financial relief to its consumers.”

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