HomeIndustry SectorsFinance and PolicyEskom denies it has cash flow problems

Eskom denies it has cash flow problems

With reference to recent articles in the South African media regarding Eskom’s cash flow challenges, the utility reassures that its cash flow situation is very stable. Eskom says that it manages its cash flow in a responsible manner and will always make sure that it has sufficient liquidity balances both in terms of actual liquid assets as well as to easily issue financial instruments to manage any unexpected liquidity needs.

Eskom has said for some time that the National Energy Regulator of South Africa ’s (Nersa’s) 2013 third multi-year price determination (MYPD3) decision to allow Eskom an 8% annual tariff increase left the utility with a R225-billion revenue shortfall over the five-year period between 2013 and 2018. “Being a financially responsible institution and cognisant of its obligations as set out in both the Public Finance Management Act and the Companies Act, the Eskom Board and Executive Committee had to move decisively to find a solution to the R225-billion revenue shortfall from the reduced Nersa determination. The scope of this project was dealt with through an internal efficiency exercise within Eskom which was established to determine where this shortfall could be offset. The solution had to take into account all possible elements, efficiencies, deferral, cessation of activities, additional debt finance, including equity/equity-like instruments,” Eskom says.

“Although the R225-billion revenue shortfall from the Nersa’s MYPD3 determination has been closed out (through Eskom’s internal efficiency processes), it has left Eskom’s credit metrics showing negligible improvement over the MYPD3 period. This is seen as inappropriate as Eskom seeks to be a fiscally responsible entity and where possible limit undue dependence on the shareholder.”

It is in this context that Eskom, through its shareholder ministry, the Department of Public Enterprises, is in discussion with the National Treasury to find a long-term solution, which may or may not include an equity injection. Eskom insists that despite the figures of a possible state intervention being bandied about in the media, it is still too premature to mention the mechanism or amount of balance sheet improvement which will be pursued as discussions are currently underway.

In addition, Eskom has submitted a Regulatory Clearing Account (RCA) application to Nersa for the MYPD2 period i.e. the application seeks to recover over/under expenditure for that period based on the initial assumptions at MYPD2 award. Through this process, the regulator is reviewing whether what it awarded Eskom previously, based on its forward estimates of costs such as coal, stacks up against the costs that have actually been incurred over the period. The regulator will make its own pronouncement on that. This is a normal Nersa process and Eskom has not asked Nersa for a re-opening of the MYPD3 price increase decision as reported in the media.

“The 8% regulatory price determination in February 2013 has forced Eskom to continue to prioritise productivity and sustainability. The utility is acutely aware of its obligations and will continue to access financial markets efficiently and will prioritise this in its decision-making as it actively continues to manage its finances. In addition to cost cutting measures mentioned above, Eskom is exploring all other avenues of potential funding, as any business would.

“The renewed focus on the improvement of Eskom’s balance sheet is to ensure that Eskom comfortably maintains an investment grade credit rating, thereby facilitating cost effective access to the substantial domestic and international capital which Eskom requires. It is important that Eskom remains financially sustainable to enable us to keep the lights on and deliver on its build programme,” the utility’s finance director, Tsholofelo Molefe, says.

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