Eskom's Financial Crisis Deepens as Municipal Debts Soar to R95 Billion

In the latest financial disclosures for the year ending March 31, 2024, Eskom, South Africa's primary electricity supplier, revealed a concerning increase in municipal debt, which now stands at a staggering R95.4 billion. This financial burden has significantly impacted Eskom's balance sheets, despite the utility posting some operational profits.

At a recent presentation of its annual financial statements, Eskom reported a substantial after-tax loss of R55 billion. A significant portion of this loss was attributed to a one-time accounting adjustment related to the derecognition of a deferred tax asset worth R36.6 billion. This adjustment was necessary due to the restructuring of Eskom’s Transmission Division into the separate National Transmission Company South Africa (NTCSA).

Although Eskom managed to increase its operating profit by 288% to R10.2 billion, this figure excludes substantial debt-servicing costs, which amounted to R38.4 billion for the year. Consequently, Eskom still faces a net loss, although there was a 26% reduction in loss before tax compared to the previous year.

Looking ahead, Eskom's management expressed optimism about the company's financial prospects, citing improved operational performance and the successful minimization of load-shedding since the end of March 2024. The utility has also implemented significant cost-saving measures, achieving over R10 billion in savings from reduced diesel use and setting a cost-savings target of R16.2 billion for the 2025 financial year.

However, a major threat looms over these positive developments – the growing mountain of debt owed by South African municipalities. Despite various interventions by the National Treasury, including a municipal debt relief program, the debts continue to rise. This increasing debt not only jeopardizes the financial health of Eskom but also threatens the feasibility of the recent segregation of Eskom’s divisions.

Details revealed by the Minister of Co-operative Governance and Traditional Affairs, Velenkosini Hlabisa, indicate that the total owed by municipalities and metros has risen to R109.4 billion as of December 2024. Gauteng's municipalities are the highest debtors, owing R29.4 billion, followed by the Free State and Mpumalanga.

Eskom's CFO, Calib Cassim, has expressed concern that if the trend of increasing municipal debt continues, it could negate the effects of the recent R254 billion government bailout and possibly necessitate further government intervention. The rapid growth rate of municipal debt, increasing by about R20 billion annually, paints a grim picture for the utility’s financial sustainability.

This ongoing crisis highlights the significant challenges Eskom faces in securing financial stability while continuing to provide uninterrupted power supply to the nation. The utility's future profitability and operational efficiency critically depend on resolving these municipal debt issues and improving payment compliance across all regions.