Eskom is buckling under its debt burden of R419 billion and appears to be fishing for other government bailouts.
It became clear on the presentation of the interim results for the six months that ended September 30 at Megawatt Park headquarters in Sandton on Wednesday.
The debt can increase to R600 billion in the next three years. Eskom has used R337 billion of R350 billion in government guarantees and may request further guarantees.
Utilities reported a decrease in net profit of 89% – from R6.3 billion at the end of September 2017 to R671 million just one year later. Eskom Cassim's newly appointed CFO Calibus told reporters that full-year losses could reach as much as R15 billion, up from the R11.2 billion budgeted for the beginning of the financial year.
‘Expect loading load '
These results come against a background of deteriorating operational performance. Eskom COO Jan Oberholzer said at the event "transfer of cargo is a reality that will happen".
In the reporting period, Eskom generated R26.6 billion from operating activities, which did not reach R18.5 billion from the R45.2 billion needed to pay its debts. This is after the debt payment costs almost doubled from R23.2 billion at the end of September last year.
Staff costs and major energy costs each rose by 12% while delinquent debt from the city increased 25% to R17 billion.
Sales volume fell 0.8% which led to an increase in revenue of only 2.7% despite a 5% increase in tariffs.
Eskom Chair Jabu Mabuza explained that "Eskom is not sustainable as understood and seen today."
Permanent loss situation
He said Eskom was locked in a situation of permanent loss and income was structurally limited. Costs have ballooned due to inefficiencies, and electricity rates do not reflect costs.
The problem is that customers cannot afford to pay reflective fees, he said.
He added that without significant changes, funding costs would increase further and utilities might not continue as business continuity.
Eskom does not sell enough electricity and does not collect revenue for the electricity it sells, Mabuza said. It costs more and more just to make payments for the money he borrowed.
The council has prepared an "ambitious" turnaround plan and currently involves the government in it. This has met with public company minister Pravin Gordhan and has briefed President Cyril Ramaphosa. Still have to meet with the energy and finance minister and also be involved with trade unions, Mabuza said.
& # 39; This will be painful & # 39;
He stressed that the Eskom problem could not be resolved by Eskom itself, saying that utilities must "work with the government to reduce Esch's debt and debt service costs".
"This will require pain," he said. "The question is what kind of pain."
Asked whether the conversion of debt to equity was an option, Mabuza said the Eskom board initially thought that it might succeed, but realized that its biggest creditor – Public Investment Corporation (PIC) – would need a return of equity to government retirees.
"It cannot invest in loss-making entities," he said; if the PIC won't invest, why are other funders?
"There are other ways, such as bailout injections or equity," he added.
Not attractive to investors
Mabuza further states that there is "little that can be sold" in terms of assets and that all power plants other than Medupi and Kusile operate at an Ebitda average (profit before interest, tax, depreciation and amortization) margin of 21%, which will not attractive to investors.
Medupi and Kusile operate in Ebitda around 60% and can be sold, but Eskom needs them to produce electricity. In addition, Eskom paid more than double the amount it would have for the construction of these two power plants, so this idea was "non-starter", said Mabuza.
The Eskom Finance Company sales have long been on the card, but that will not make a material difference to Eskom's position, he said.
The Eskom issue is a measure of debt and ease of service, Mabuza said, adding that "if we can get some help on the burden" ease of service will be less of a problem.
Someone has to pay …
He stressed that "someone" must pay the debt: "Both consumers and taxpayers must pay. And that may be the same person!"
Asked about the minimum amount for which Eskom's debt burden needs to be reduced, Eskom's CEO Phakamani Hadebe said it would depend on the current tariff setting before energy regulator Nersa. Eskom has requested a 15% rate increase every year for the next three years.
Nersa will hold a public hearing about the application in January and announce its decision on March 1 next year.
* At the same event, Eskom announced that Calib Cassim, who had acted as CFO for the past 14 months, had been appointed to the position permanently.
Listen: Eskom's woes deepen despite a turnaround plan