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Eskom Anticipates a R20 Billion Loss Amid Ongoing Challenges and Hopes for Turnaround

Published April 01, 2024
2 months ago

Eskom, South Africa's state-owned power utility, is bracing for another daunting fiscal year as it anticipates a loss exceeding R20 billion. These challenges stem from a combination of declining electricity sales, high operating costs and an extensive history of financial strain due to mismanagement and corruption.

Mteto Nyati, the chairperson of Eskom, expressed this bleak forecast in a recent interview with CNBC Africa. According to Nyati, the power utility is facing an arduous journey towards financial stability, with profitability projected to be more than two years away.

Eskom's decline in sales is largely a result of the frequent load-shedding events that have become commonplace across South Africa. Furthermore, the utility's expenditure on diesel to run emergency generators has skyrocketed, battering its financial position.

Nyati outlined numerous problems plaguing Eskom, including its crippling debt burden of over R400 billion, internal criminal activities, unreliable power operations, and recurring leadership turnovers. These endemic issues are entrenched in an organizational culture that Nyati characterized as counterproductive and dysfunctional.

Improvement is on the horizon, though, with the government's expected intervention to take on R254 billion of Eskom's debt by the end of the next fiscal year. This massive debt absorption should alleviate some of the utility's financial woes, decreasing its debt-servicing overheads and inching it closer to profitability.

Nyati also highlighted ongoing efforts to gradually mitigate load-shedding occurrences, a move that should increase revenue and decrease reliance on costly diesel fuel. But even with these measures, the Eskom chairperson cautioned that the road to financial recovery is a lengthy process, and meaningful change will not be immediately noticeable on the balance sheets.

The utility's persistent financial struggles were evident in its last annual report, which listed a staggering net loss of R23.9 billion, an increase from R11.9 billion from the previous year. Eskom is now in its seventh year of consecutive losses, weighed down by its immense debt, high finance costs, persistent operational failures, and accumulating municipal arrears.

Nyati's forecast of another R20 billion loss aligns with Eskom's previous guidance issued in October of the prior year, which anticipated a loss of R23.2 billion for the financial year ending March 2024.

Notably, Eskom's financial performance typically fares better in the first half of the financial year due to increased demand and higher tariffs during the winter months. Unfortunately, this is often offset by the second half's lower sales and heightened maintenance activities during the summer.

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