Eskom warns of R20bn losses this year and next, even after big hikes <www.engineeringnews.co.za/article/eskom-warns-of-20bn-losses-this-year-and-next-even-after-big-hikes-2019-02-04> *Photo by* Dylan Slater Eskom CFO Calib Cassim presenting in Midrand on Monday
4TH FEBRUARY 2019
BY: TERENCE CREAMER <www.engineeringnews.co.za/author.php?u_id=13> CREAMER MEDIA EDITOR
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State-owned electricity utility <www.engineeringnews.co.za/topic/electricity-utility> Eskom <www.engineeringnews.co.za/topic/eskom> is warning that its loss for 2018/19 will be worse, at R20-billion, than the R15-billion loss it had projected earlier and that it will be followed by another big loss in 2019/20 even if it receives hikes it is currently seeking from the regulator.
CFO *Calib Cassim <www.engineeringnews.co.za/topic/calib-cassim>* announced the revised earnings estimate during the second day of the Gauteng leg of the National Energy <www.engineeringnews.co.za/topic/energy> Regulator of South Africa <www.engineeringnews.co.za/topic/south-africa>’s (Nersa’s) public hearings into Eskom <www.engineeringnews.co.za/topic/eskom>’s fourth multiyear price determination (MYPD4) application. ADVERTISEMENT
The deterioration was attributed mainly to the additional costs that had arisen as a result of the underperformance of the utility’s coal <www.engineeringnews.co.za/topic/coal> fleet, which had already resulted in a sustained period of rotational load-shedding towards the end of 2018.
The fall in the coal <www.engineeringnews.co.za/topic/coal> fleet’s energy <www.engineeringnews.co.za/topic/energy> availability factor (EAF) had also led to Eskom <www.engineeringnews.co.za/topic/eskom> becoming increasingly reliant on more expensive generation options, such as the diesel <www.engineeringnews.co.za/topic/diesel-company>-fuelled open cycle gas <www.engineeringnews.co.za/topic/gas> turbines <www.engineeringnews.co.za/topic/turbines-company>. ADVERTISEMENT <www.engineeringnews.co.za/adcentre/rv/en/www/delivery/ck.php?oaparams=2__bannerid=3862__zoneid=647__cb=38a5a25f81__oadest=http%3A%2F%2Fwww.veaseys.co.za>
Cassim also used the hearings platform to warn of a possible R19.7-billion loss for the 2019/20 financial <www.engineeringnews.co.za/topic/financial> year, which he said could arise even if the utility was granted the 21.5% tariff increase it was seeking for implementation from April 1.
Following recent revisions to the sales and production assumptions used in its original MYPD4 submission, Eskom <www.engineeringnews.co.za/topic/eskom>is requesting a 17.1% hike for 2019/20, instead of the 15% originally sought. The increase would be additional to the 4.41% rise already approved for the year as a result of Nersa’s adjudication, last year, of Eskom <www.engineeringnews.co.za/topic/eskom>’s Regulatory Clearing Account (RCA) applications.
The utility also revised its tariff request for 2020/21 and 2021/22 to 15.4% and 15.5% respectively from 15% previously, after lowering its sales forecast, reducing the coal <www.engineeringnews.co.za/topic/coal>fleet EAF for the coming three years and updating the schedule for the introduction of new Medupi and Kusile units.
In addition, Eskom <www.engineeringnews.co.za/topic/eskom> is seeking to claw-back a R21.5-billion through an RCA application for 2017/18 and is proposing that the amount be recovered by means of a 2.8% additional hike in 2020/21, which would be included in the tariff base until 2022/23.
Cassim said price increases in line with Eskom <www.engineeringnews.co.za/topic/eskom>’s updated request – which is being strongly contested by business <www.engineeringnews.co.za/topic/business>, unions and civil society – were necessary to return Eskom <www.engineeringnews.co.za/topic/eskom> to within reach of a breakeven position and allow it to begin servicing its R420-billion in debt without resorting to additional debt.
Should it be granted its request, Eskom <www.engineeringnews.co.za/topic/eskom> forecasts that it would make a smaller loss of R3.6-billion in the third year of the MYPD4 period and return to profitability thereafter.
*R100BN DEBT RELIEF PROPOSAL CONFIRMED*
The earnings estimate did not include any provision for government taking over R100-billion of its debt, which Cassim confirmed had been proposed to government by Eskom <www.engineeringnews.co.za/topic/eskom>. “Obviously, if that decision is favourable, it will improve our income statement to a certain extent.”
In the absence of support from either the consumer or the taxpayer, or both, the utility’s “going-concern status was in jeopardy”.
“If we get to a situation where our accounts are qualified, the implications are significant for Eskom <www.engineeringnews.co.za/topic/eskom>, where the lenders will want to recall their debt, government will have to step in and we will have to present our financials on a liquidation basis. That’s the seriousness of the situation that’s facing Eskom <www.engineeringnews.co.za/topic/eskom>.”
Eskom <www.engineeringnews.co.za/topic/eskom> also stressed that calls for no increase or an inflation-linked hike were not realistic, owing to the RCA-related tariff approval of 4.41% and the expectation of full cost recovery against current and future independent power <www.engineeringnews.co.za/topic/power> producer (IPP) contracts, which would add a further two percentage points to the 2019/20 increase.
“Therefore, in reality, we are already at the top of the inflation target, without giving Eskom <www.engineeringnews.co.za/topic/eskom> a single increase for its own cost of operations <www.engineeringnews.co.za/topic/operations>.”
EDITED BY: CREAMER MEDIA REPORTER