Eskom’s generation, transmission, and distribution operations are all bleeding money.
This is according to Rapport, which explained that Eskom CFO Calib Cassim’s presentation on the group’s interim results showed that all three these divisions will show a loss by the end of the company’s current financial year.
The company published its interim results for the half year ended September 2020 on Monday, revealing that the utility was headed for a fourth straight year of being unprofitable.
Despite making a profit of R83 million in the first half of the year, Eskom forecast an annual loss of R22 billion.
“Significant financial challenges remain, predominantly related to tariffs not being cost-reflective, coupled with an unsustainably high debt burden,” Eskom said.
According to the results, electricity sales dropped by 10.3% due to lockdown measures aimed at curbing the spread of COVID-19.
Transmission’s unexpected slump
Energy and financial analysts told Rapport that Eskom’s transmission division was believed to be in a good position.
“I thought that the tariffs of the network divisions (transmission and distribution) were of such nature that they would show a good, regular income,” former chairman of the Energy Intensive User Group Piet van Staden told Rapport.
However, Cassim’s forecast showed that transmission would suffer a R2.8 billion loss before tax by March 2021.
The expected losses for generation and distribution would amount to R24.6 billion and R6.8 billion, respectively.
The utility is in the process of splitting these three key operations into separate entities, with transmission’s spin-off planned to be completed by the end of 2021.
Increased electricity prices or more bailouts
Eskom is facing a mountain-sized debt of over R500 billion.
It previously stated it would have to increase electricity prices or rely on more bailouts from government in order to recover and become financially viable again.
“In order to address our unsustainable legacy debt, we either have to rely on bailouts funded by the tax-payer, or improve our financial situation by NERSA allowing Eskom to charge cost-reflective tariffs,” Cassim stated at the time.
Eskom CEO André de Ruyter said they believed the latter option would be best, particularly in light of the Minister of Finance’s Medium Term Budget statement.