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Eskom boasts of improved operational performance despite financial challenges

While tabling the much-anticipated 2017/18 financial results, Eskom noted that it has continued to deliver improved operational performance in the financial year ended 31 March 2018 despite the financial and governance challenges facing the company. 

The company’s acting chief financial officer, Calib Cassim, said the company’s financial health has deteriorated in recent years due to lower electricity demand, low tariff increases, and above-inflation cost increases. The financial performance is further expected to deteriorate before improving.

EBITDA increased from R37.5-billion to R45.4-billion mainly due to containment of operating expenses. Read more: Eskom to release its 2017/18 financial results

Eskom posted a net loss of R2.3-billion (2017: R0,9-billion profit) largely due to a substantial rise in depreciation and net finance cost. Depreciation increased to R23-billion from R20-billion as a result of new power plants being put into commercial operation.

Finance cost, after capitalisation increased to R26-billion compared to R19.6-billion in the same period last year. This was mainly attributable to increased borrowings and a reduction in borrowing cost capitalised as new power plants being brought into commercial operation.

“Cost containment alone will unfortunately not solve Eskom’s financial position. It is therefore important that the price of electricity should migrate towards cost reflectivity,” said Cassim.

Good operational performance

Eskom’s chairperson, Jabu Mabuza, said “despite achieving good operational performance, Eskom experienced a tumultuous year, characterised by liquidity issues coupled with a myriad of governance related challenges which mainly stemmed from the previous financial year’s qualified audit.”

“Eskom has suffered an absence of ethical leadership at the highest level for some time, but we aim to rectify that as a matter of urgency. We believe this is one of the principles underpinning the stabilisation of Eskom and to set it up for sustained success, while fulfilling both its commercial and developmental mandate,” he said.

However, noting operational milestones, the company highlighted the success of Medupi Unit 5, which achieved commercial operation on 3 April 2017 after completing performance, reliability and compliance tests.

This was followed by Kusile Unit 1 that achieved commercial operation on 30 August 2017, and Medupi Unit 4 on 28 November 2017. The three units have added total installed capacity of 2, 387MW to the national grid.

Furthermore, Kusile Unit 2 and Medupi Unit 3 have been synchronised to the national grid and are expected to become fully operational within six to nine months.

Eskom remains confident that the new build programme will be completed by 2022/23, barring delays as a result of contractor performance, industrial action or other issues outside their control.

Plant availability improved marginally to 78% compared to 77.3% in the same period last year. Planned and unplanned outages were also kept within the targeted range of 10% each.

“Despite satisfactory progress being maintained on the new build programme, as well as improved operational performance for the current financial year, Eskom continues to face significant challenges in the short to medium term. Revenue levels remain unsatisfactory, and the tariff increase of 5.2% for the current financial year further compounds the impact of the 2.2% tariff we received last year, and is therefore not expected to lead to much improvement,” said the company’s group chief executive Phakamani Hadebe.

Hadebe added that: “Levels of arrears debt, especially from municipalities, remain unacceptably high. In the short term, our focus will remain on cost efficiencies to support financial sustainability.”

Eskom undertakes strategy review

Eskom is currently undertaking a strategy review, expected to be completed by September 2018.

The aim is ensuring that the company has an integrated strategy that addresses not only its current challenges, but also ensures that the future direction is clear and focuses on stabilising the organisation, by cleaning up governance issues and stopping the bleeding, and thereafter re-energising and growing the business.

Read the full Eskom 2018 Integrated Report here. Eskom 2018 Integrated Report

Babalwa Bungane
Babalwa Bungane is the content producer for ESI Africa - Clarion Events Africa. Babalwa has been writing for the publication for over five years. She also contributes to sister publications; Smart Energy International and Power Engineering International. Babalwa is a social media enthusiast.