HomeIndustry SectorsBusiness and marketsEskom calls for regulator’s support to regain financial stability

Eskom calls for regulator’s support to regain financial stability

Eskom has made an appeal that its operational requirements, that pass the regulator’s prudency test, need to be compensated through the regulatory process to enable it to recover technically and financially.

This message was shared at the National Energy Regulator of South Africa (NERSA) public hearings in Midrand where Eskom also confirmed the revenue requirement remained unchanged, recovered over the lower sales resulting in the percentage increase to 17.1%, 15.4% and 15.5% over the three years.

Calib Cassim, Eskom’s chief financial officer, said: “Our stakeholders who include debt providers, rating agencies, auditors are awaiting this crucial decision from our MYPD 4 and RCA applications as an important part of the solution to return Eskom to financial and operational sustainability.

“As disclosed in our interim financial statement for the period ending September 2018, Eskom’s going concern status is highlighted as emphasis of matter showing the level of financial distress. We are projecting a net loss of close to R20 billion at financial year end and it is clear that while we have maintained operating costs escalations around inflation levels, Eskom cannot solve financial and operational sustainability challenges that it faces alone. This loss situation will continue for the next few years even with the applied-for increases.”

Further indebtedness adds to the problem

An analysis shared by Deon Joubert, corporate specialist, illustrated that Eskom has been providing a subsidy to customers over many years. Read more: Consortium to aid Eskom through a loan facility

Eskom had to fund this subsidy through increased borrowings.

However, Cassim clarified that this “credit card phenomenon” is not sustainable any longer. The regulator would need to make a decision on whether the electricity consumer or the taxpayer is accountable for efficient costs. 

“The regulatory process as well as shareholder support is crucial. The shortfall in tariff cannot be solved through cost reductions alone, and further indebtedness adds to the problem. We were encouraged by NERSA’s own presentation in parliament where they showed that Eskom had not recovered revenue allowed by the Regulator over the MYPD 3 period,” said Cassim.

Eskom confirmed that it would continue to apply the MYPD methodology and the precedent set by the 2013/14 RCA decision. 

“We note the impact on electricity users and have made two changes in our RCA application following questions from the NERSA panel on the fees recovered from McKinsey and the period over which to recover the RCA. The first one is using the money recovered from McKinsey to reduce our application of R21 billion to R20 623 billion and secondly, to recover the 207/18 RCA over a period of three years from 2020 to 2023. Delaying recovery of the RCAs puts more pressure on Eskom’s finances,” said Cassim. 

Read the full statement here