We need higher electricity prices or more bailouts – Eskom

Eskom has said it will have to increase electricity prices or have to get more bailouts from the government at the expense of South African taxpayers.

The power utility on Friday released its financial results for the year ended 31 March 2020 and said it had experienced “significant operational and financial challenges”, resulting in Stage 6 load-shedding during December 2019 and further financial assistance from the government.

Chief Financial Officer Calib Cassim unpacked Eskom’s financial position, which he said had improved owing to government equity support of R49 billion during the year and R56 billion allocated to the 2021 financial year.

He indicated, however, that cash from operations is insufficient to service Eskom’s debt commitments and therefore the support from government was necessary.

But the company cannot rely on government support for survival, said Cassim.

“In order to address our unsustainable legacy debt, we either have to rely on bail-outs funded by the tax-payer, or improve our financial situation by NERSA allowing Eskom to charge cost-reflective tariffs.”

Eskom CEO André de Ruyter said they believed latter option would be best in the context of the Minister of Finance’s Medium Term Budget Policy Statement.

Operational and financial performance

Despite an improved EBITDA of R37 billion, compared to R31.4 billion in 2019, Eskom incurred a net loss after tax of R20.5 billion.

During the year the company raised R50.9 billion in debt, against the target of R46 billion.

De Ruyter said that management had made significant changes to arrest the operational and financial decline.

“We have implemented assertive collection strategies against the largest municipal defaulters, which has resulted in a 17% increase in payment levels from these customers during FY21,” De Ruyter noted.

“This is one of the key areas that require a concerted effort if Eskom is to embark on a sustainable course. Every consumer of electricity needs to pay for what they consume,” said De Ruyter.

To improve its financial situation, Eskom noted it had paid particular focus to its capital and operating expenditure, coal inventory optimisation, revenue recovery initiatives, and increased international revenues.

“These savings are absolutely critical, particularly in light of the impact of COVID-19, which will no doubt have a negative impact on Eskom’s finance over the next few years,” Cassim said.

“The reality is that our financial results for the 2021 financial year are expected to be similar to FY20, before the fruits of long-term improvements materialise,” said Cassim.

Load-shedding and maintenance

Eskom said the maintenance programme of its ageing fleet of coal-fired power stations contributed to load-shedding increasing to 46 days.

However, coal stockpiles were significantly improved to a normalised average of 50 days, from 36 days the previous year.

“The urgent need to procure coal during the crisis late in 2018 also resulted in higher prices having to be paid to secure supply. The bulk of these expensive short term contracts have now come to an end, and we expect our coal cost increase for the current financial year to be contained well below inflation,” said De Ruyter.

The utility has also embarked on correcting the design defects that have inhibited the performance of its new power stations.

“These repairs will be completed in the third quarter of 2021, and would help significantly increase available generation capacity,” the utility added.

Now read: Eskom needs R178 billion to switch to renewables – Study

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We need higher electricity prices or more bailouts – Eskom