‘Bold steps’ needed to save Eskom, Jabu Mabuza says, as more load-shedding looms
Mabuza says the way in which the company is operating now ‘is not sustainable’
Eskom, which is facing dire financial woes, has seen a steady decline in plant performance and coal supply, which could threaten its ability to keep the lights on, chair Jabu Mabuza said on Wednesday.
Mabuza said at the release of the state-owned power producer's 2018-2019 interim results that the way the company was operating now “is not sustainable”.
Profit dropped 89% to R671m in the six months to September, from R6.3bn in the previous year. Finance costs rose to R15.2bn rand from R11.9bn.
“We are locked in a permanent loss-making position,” he said.
“We need bold steps to save Eskom … someone has to pay for the problems that Eskom finds it’s self in — there is no option of not fixing — and fixing will cause some pain.”
Mabuza said they were engaging stakeholders to find financial alignment, with the aim of about R30bn in savings over the next five years.
He also confirmed the permanent appointment of Calib Cassim as CFO.
The interim results showed that most financial ratios deteriorated, and that arrears from municipalities continued to worsen — jumping from R13.6bn earlier in the year, to R17bn in September.
Eskom CEO Phakamani Hadebe said that despite a recovery programme, load-shedding could not be ruled out for the remainder of 2018.
“We will do our best but South Africans need to know it’s a risk that is existing,” he said.
The risk remained high as Eskom faces severe coal supply shortages at 10 of its 15 coal-fired plants and is incurring a high number of unplanned outages, because of years of inadequate maintenance.
Eskom has said it would spend as much as R1bn extra on diesel to run open cycle gas turbines over the next four months in order to keep the lights on while it performed planned maintenance.
Cassim said at Wednesday's event that the utility is likely to register a pre-tax loss that is above the R11.2bn it had budgeted for the full year.
Mammoth debt of about R400bn weighs heavily on the utility, which said debt servicing costs were R45bn, with cash from operations only almost R27bn. Primary energy costs grew 12% to R46bn, with the employee benefit expense also up 12% to R16.9bn.
“We are not selling enough electricity, or not at the prices that recover our cost,” said Hadebe. “We are not collecting all we have sold.”
Mabuza said that although management has made strides in cleaning up the SOE in terms of corporate governance, “it really doesn’t matter anymore why we are where we are; what matters is how we are going to get out”.
A turnaround plan had to be implemented immediately if Eskom were to make it through another year, he said.
Broadly, that meant curtailing Eskom’s costs, enhancing revenue and reducing debt. The utility would also seek to ring-fence its various parts to increase the transparency of cost.
Mabuza said an equity injection, or some sort of debt relief was needed — although Eskom had not had that discussion with the finance minister yet.
Meanwhile, the final report of parliament’s inquiry into Eskom was adopted on Wednesday with the unanimous support of all political parties.
The public enterprises committee, which conducted the inquiry, found that former ministers of public enterprises — Malusi Gigaba and Lynne Brown — were “grossly negligent” in carrying out their responsibilities.
The committee found that there had been corruption of procurement processes at Eskom and that there was a corrupt relationship between the Gupta family, their associates and key state functionaries.
With Linda Ensor
Correction : November 28 2018
An initial version of this article incorrectly said that Eskom's profit was R6.3m rather than billion last year.