Eskom chairperson Jabu Mabuza
Troubled State-owned power utility Eskom warned on Thursday that its record R20-billion loss of 2018/19 would be repeated in 2019/20 and said that planned cost-savings and already-secured fiscal transfers would have to be accompanied by debt relief and further tariff hikes if the debt-laden group were to be returned to a sustainable financial position.
Eskom’s debt stood at more than R454-billion at the end of September and interest payments would balloon in the current financial year to R38-billion, making them the utility’s second-largest cost item after coal procurement, which would come in at R55-billion. Eskom would have to repay total debt of R86-billion, including a repayment of R48-billion in capital.
Interest payments this year would, thus, be higher than both staffing costs (R34-billion) and capital expenditure (R35-billion).
Speaking at the release of interim results on Thursday, chairperson Jabu Mabuza said that the R1.3-billion profit recorded during the six months to September 30 would be obliterated in the second half of the year and indicated that the full-year loss would be in line with the R20-billion loss recorded in 2018/19.
He also indicated that the group would push ahead with efforts to reduce its cost base by R33-billion a year by 2023, without retrenchments, in line with government’s insistence that jobs should not be shed at the utility, which would be unbundled into separate generation, transmission and distribution units under Eskom Holdings.
Eskom had initially planned to secure some of the cost savings through a headcount reduction, but was now focusing on other areas, including coal procurement.
Mabuza also said priority attention was being given to recovering arrears from municipalities and Soweto, which together owed Eskom more than R40-billion.
However, CFO Caleb Cassim stressed that costs savings alone would not be sufficient to close a R50-bilion debt-servicing gap, which could only be addressed through a debt-relief solution, coupled with a rise in tariffs to cost-reflective levels.
Fiscal transfers of R49-billion this year, R56-billion in 2020/21 and R33-billion in 2021/22 had provided “breathing space” of as much as two-and-a-half-years, but Cassim said that Eskom, government and bondholders were all keen for a debt-relief “roadmap” to be finalised so as to improve certainty over Eskom’s financial position.
Work on the solution was being led by the chief restructuring officer in collaboration with government and lenders would be approached once a final solution had been tabled.
Eskom had also approached the courts to review recent tariff determinations made by the National Energy Regulator of South Africa (Nersa), with the first matter, an application for urgent interim relief against the regulator’s most recent tariff determination, likely to be heard in January.
The legal action followed the publication of Nersa’s reasons for decision relating to the fourth multiyear price determination (MYPD4), covering the three years from 2019/20 to 2021/22, as well as the Regulatory Clearing Account (RCA) balance for the 2018 financial year.
Eskom was arguing that Nersa’s decision to offset envisaged government support of R23-billion a year, referred to by Finance Minister Tito Mboweni in his Budget speech, against its return on assets had worsened its financial sustainability.
In court papers, the utility argued that the MYPD methodology did not allow for an equity investment by government to be included as a return on assets and that the deduction of the financial support defeated the purpose of the support received by the shareholder.
Earlier, Eskom had also approached the courts for a judicial review of the regulator’s price determination for the 2018/19 financial year, as well as three previous RCA determinations for the 2014/15, 2015/16 and 2016/17 financial years.
The utility was claiming that the regulator failed to adhere to the rules and principles of the Electricity Regulation Act, as well as the MYPD methodology, when arriving at its MYPD4 and RCA2018 decisions.
Cassim said he was confident that, should the combination of cost cutting, arrears recovery, debt relief and tariff adjustments be implemented, Eskom would begin to reduce its losses from 2021/22 onwards.