Eskom revenue growth for the financial year ending March 2021 grew because of a tariff increase, even as their sales volume dropped 6.7% over the same period thanks to the COVID-19 pandemic.
According to results for the financial year ending March 2021, released yesterday, arrear municipal debt grew by 26% to R35.3 billion, a total of 47 loadshedding days were recorded compared to 46 the previous year and the utility admits its environmental performance “remains disappointing”.
Eskom CEO Andre de Ruyter pointed out the state-owned entity has over the past two years reduced its workforce by just under 4,000 employees. These included 74 voluntary separation packages on managerial level which helped reduce employee benefits cost and the manager to employee ratio, all in the name of improving operational efficiency.
“It must again be stated that not a single one of these was a forced retrenchment,” said de Ruyter.
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Gross outstanding debt was reduced by R81 million (government contributed R56m towards that reduction) to an outstanding debt of R401.8 billion. The organisation’s debt remains unsustainable, attracting a net finance cost of R31.5 billion in the year under discussion. This had the effect of turning an operating profit of R5.8 billion into a loss of R18.9 billion after tax.
“The slowdown of economic activity due to the pandemic led to an unprecedented decline in sales. Sadly, the losses Eskom suffered as a result of the COVID-19 pandemic were not limited to our finances. We also lost 153 of our colleagues to the pandemic, including 17 contractors.
“Operationally, however, every crisis does bring with it an opportunity. In this case Eskom used unfortunate lower demand presented by the lockdown to conduct much-needed maintenance at some of our power stations,” said de Ruyter.
Maintenance, unbundling and energy costs at Eskom
The energy availability factor deteriorated from 64.19% from 66.64% the previous year. Eskom says that was a direct consequence of the implementation of the reliability maintenance programme which called for more planned maintenance.
Primary energy costs increased with R3.8 billion mainly as a result of an increase of R3.1 billion in renewable IPPs due to an increased production from these independent companies.
Giving an overview of the organisation’s performance, De Ruyter explained that Eskom’s long-term objectives of achieving operational and financial sustainability are dependent on the successful implementation of the turnaround plan currently under way. “The turnaround plan, which is overseen by a diverse executive committee (Exco), comprising 56% Black female representation, focuses on operations recovery, improving the income statement, strengthening the balance sheet, driving business separation and bringing about a winning, can-do culture,” said De Ruyter.
Business separation for the utility is on track. All the necessary documentation was completed and signed by 7 June 2021, thereby completing functional separation of the three line divisions. Eskom is working towards achieving legal separation of the Transmission entity. A number of dependencies are lagging behind, putting the finalisation of separation of the Transmission entity by 31 December 2021 at significant risk.
However, their intention remains to comply with the timelines set out in the Department of Public Enterprises Roadmap, despite the obstacles encountered. The legal separation of the Generation and Distribution entities should be finalised within the 2022/2023 financial year.
Addressing the big debt to ensure long-term financial sustainability
Addressing the areas municipal debt figure of a 26% year on year increase to R35.3 billion, Eskom Chief Financial Officer, Calib Cassim said they were working closely with the Political Task Team led by the Deputy President. Eskom is also pursuing active partnership agreements with some of the municipalities, in which it hopes to arrest the spiral in outstanding debt.
“Cost savings alone is not a solution. Eskom’s capital position must be resolved. Cost-reflective tariffs and resolving the municipal arrear debt are required to achieve the successful implementation of Eskom’s turnaround and to ensure long-term financial sustainability. For its part, Eskom continues its concerted effort to reduce the debt and to improve gearing,” said Cassim.
Eskom has so far secured R16.2 billion of its R41.6 billion funding requirement for the 2022 financial year.
The Eskom CFO said the strengthening of the Rand had a significant positive impact on results for the year. He stated that Eskom’s liquidity remained a concern due to the high cost of servicing the outstanding debt, working capital requirements, escalating municipal arrears debt, and sub-investment grade level credit ratings, among other factors.
“This picture is likely to remain unchanged in the short to medium-term, however, reliance on government support mitigates the material uncertainty regarding Eskom’s status as a going concern,” said Cassim.