Eskom has warned of serious deterioration in its finances for the 2023/24 financial year after doubling its losses in the past 12 months, largely driven by primary energy costs of diesel to supplement poor generation performance, a decrease in sales volumes due to load shedding, and rising municipal debt.
The struggling power utility yesterday reported a net loss after tax of R23.9 billion for the financial year ended 31 March 2023, its biggest loss ever, up from R11.9bn the year before.
Eskom’s acting CEO, Calib Cassim, said that the generation performance continued to deteriorate, while networks and new build delivered variable performance.
Cassim said plant availability deteriorated to 56.03% in the 12 months ended in March, down from 62.02% a year before, despite extensive usage of diesel to keep the lights on.
As a result, Cassim said load shedding had to be implemented on 280 days during the past year, up from 65 days a year before, due to generation supply constraints and shortfall from Independent Power Producers (IPP) programmes
“Eskom’s generating plant availability reached the lowest levels ever, due to unprecedented levels of unplanned unavailability,” Cassim said.
“A factor that contributed to the supply constraints is the fact that IPP capacity – both renewable and other programmes has not come online as expected under the IRP 2019, with an energy shortfall of more than 5 100GWh for the year, requiring increased levels of load shedding and “overproduction” by Eskom and IPP-owned open-cycle gas turbines (OCGTs) of around 2 000GWh for the year.”
Cassim said financial indicators thus declined due to a challenging operating environment, plagued by generation capacity shortages.
He said the net loss position has worsened, despite growth in revenue as profitability continued to be negatively affected by escalating primary energy and finance costs.
However, the outlook for the 2023/24 financial year remained risky as load shedding intensified this year as well, with more than 200 days of rotational power cuts having already been implemented since 1 April.
“March 2024 should be the last year we have these significant losses as we see the benefits from the debt relief. The financials will improve significantly by March 2025,” Cassim said.
“It is critical that Eskom’s performance does change. We are confident that we will turn around the operational performance, and we believe financials will then improve by the end of March 2025.”
Cassim said energy sales declined by 5% in the year as a result of rotational power cuts, offsetting the R259.5bn revenue increase due to 9.61% tariff increase, up by R11.9bn from R247.6bn last year.
Also, the 7% cost-of-living salary adjustment granted during the financial year for all employees to support operational stability also affected the utility’s finances.
Eskom spent nearly R29bn running its diesel-powered units to produce some 4 100 GWh, up from about R15bn to produce about 2 700 GWh, as its fleet of coal-fired facilities experienced frequent breakdowns.
This was exacerbated by fuel price pressures and combustion support at coal-fired stations as the average diesel price increased from around R18/l in April 2022 to R23/l by March 2023.
“Spend on Eskom IPP OCGTs to be managed within budgeted levels of R28.5 billion,” Cassim said.
“Load shedding placed pressure on the cost of production, especially in running the OCGTs, which come at an enormous extra cost of almost R30bn and which filtered through the financial performance.”
Eskom’s acting chief financial officer, Martin Buys, said Eskom received R21.9bn equity support from the shareholder during the 2023 period, in addition to the R59.9bn funding secured.
Buys said this was expected to increase in future with the promulgation of the Eskom Debt Relief Act, 2023 which aims to provide relief of R254bn during the debt relief period.
“Our biggest financial challenges remain the lack of cost-reflective tariffs, excessive use of OCGTs, above inflationary cost increases, non-payment by customers and Eskom’s debt burden,” Buys said.
“Given these circumstances, a similar net loss after tax is expected for the financial year ended 31 March 2024. This is unfortunately an undesirable situation we find ourselves in.”
Eskom’s arrears municipal debt escalated to R58.5bn from R44.8bn in March 2022, and continues to be a serious challenge to the utility’s liquidity and financial performance.
Eskom board chairperson Mteto Nyati said one of their priorities was to fight against fraud, corruption and criminality within and outside of Eskom.
“Our efforts in this pace range from tightening internal controls to the use of advanced technologies that will help us to protect Eskom’s assets like coal. This is not a problem. That is going to be addressed overnight. But we're determined to keep biting or eating at this elephant one bite at a time,” Nyati said.
BUSINESS REPORT