Eskom Projects Return to Profitability by 2025 Amid Challenges and Opportunities

In a striking reversal of fortunes, Eskom Holdings SOC Ltd., South Africa's main electricity provider, has indicated a forecasted return to profitability for the first time since 2017. According to its latest projections, the utility expects to secure an after-tax profit exceeding 10 billion rand by March 31, 2025. This optimistic forecast comes after a challenging period characterized by a substantial 55 billion-rand loss in the fiscal year 2024—more than double the previous year's figures.

The financial woes Eskom has experienced in recent years stem largely from operational inefficiencies and the highest recorded incidences of loadshedding in the company's history, which severely impacted South Africa's economy. Notably, regular power outages are estimated to have cost the economy up to 899 million rand per day. Nevertheless, the utility reports no loadshedding occurrences since March, marking a significant improvement in electricity supply reliability following extensive repairs to its primarily coal-fired generation fleet.

Despite these operational gains, financial sustainability remains a concern, especially with the ballooning debt owed by municipal entities. These debts had surged by 28% to 95.4 billion rand as of November. The inability of municipalities to settle their obligations continues to pose a significant risk to Eskom's financial health.

Under the new leadership of CEO Dan Marokane, impressive strategies are underway to transform Eskom and enhance its competitiveness, acknowledging the increasing participation of the private sector in the energy market. The utility has outlined an ambitious capital expenditure program that necessitates 834 billion rand over the next decade. This budget will facilitate the expansion of power generation capabilities and the sustainability of ongoing operations.

Eskom's plans involve not only significant investment in infrastructure but also strategic financial adjustments, including managing the impact of its transmission business unbundling. This unbundling resulted in a major financial setback in 2024 with a 36.6 billion-rand adjustment due to the derecognition of a deferred tax asset.

With improved cash flow, there has been a positive response from investors, evidenced by a slight decrease in the yields on the company’s 2028 eurobonds. The broader economic and political landscape, however, presents ongoing challenges and opportunities for Eskom as South Africa continues to navigate the repercussions of power shortages and address structural issues within its municipalities.

By focusing on these comprehensive reforms and investments, Eskom aims not only to restore its financial standing but also to pave the way towards a more reliable and efficient power supply system for South Africa.