The Eskom Megawatt Park headquarters in Johannesburg. Picture: BLOOMBERG/WALDO SWIEGERS
The Eskom Megawatt Park headquarters in Johannesburg. Picture: BLOOMBERG/WALDO SWIEGERS

In a bid to avoid financial implosion, Eskom is investigating drastic cost-cutting measures, including ways of saving money on its R140bn procurement processes.

Under the national lockdown, reduced power demand, especially from heavy industry customers, has cost the utility nearly R2.5bn in revenue in the past month.

Eskom has to find ways to save money, given the servicing costs of its R454bn debt and its high salary costs, with municipal customers failing on their electricity payments and power demand declining.

Earlier this month the utility's acting treasurer, Mandla Maleka, revealed the utility will have to look internally to find ways of cutting costs.

Energy analysts say Eskom will have to consider salary cuts, decreasing its use of diesel for emergency power generation and the suspension of coal contracts.


Eskom's current outstanding debt


Eskom's annual procurement costs, a potential area of cost-cutting


Unpaid municipal debt owed to Eskom

Spokesperson Sikonathi Mantshantsha said Eskom's estimated revenue losses are about R2.5bn a month "as a result of the lower demand during the national lockdown".

He declined to name the industrial customers that are using less power.

"Contracts with these customers are confidential. The industrial customers continue to meet their financial obligations to Eskom as they fall due."

He said Eskom will not be approaching the government for a further bailout.

On the internal measures to cut costs, Mantshantsha said Eskom initiated a voluntary severance package process for managers in February and March.

"The cost of this was capped at R400m, which is to be paid from Eskom's internal cash resources.

"This will be recouped in savings on expenditure on personnel within a year of the programme closing. There will be no forced job losses," he said.

"Eskom is investigating other avenues, which include finding avenues to cut costs in [its R140bn average annual] procurement expenditure, and increasing measures to collect on unpaid debts.

"Eskom's largest single expenditure item, primary energy [coal], is one of the areas that is being looked at to yield the biggest cost benefit.

"The lower oil prices also certainly present opportunities for efficiencies," said Mantshantsha.

He said Eskom is owed R28bn by municipalities, with Soweto residents owing just under R20bn.

"To collect these unpaid debts Eskom has taken legal action against the municipalities and, where appropriate, curtailed supply to some of the customers.

"In areas where there are high nonpayment rates for services rendered, Eskom has resolved to limit expenditure on fixing broken infrastructure."

Energy expert Ted Blom said suspension of coal contracts would help Eskom address its poor financial situation.

"By lowering its coal purchases, the utility can potentially save R5bn a month, which is what it needs roughly to offset its revenue losses."

He said contract suspensions would, however, potentially land Eskom in legal trouble.

"Eskom should rather focus on proper staff-cutting cost measures."

Energy analyst Clyde Mallinson said costs could be saved by burning less diesel under emergency power and on coal procurements, especially on the cancellation or suspension of expensive short-term contracts.

"The lockdown has created a slowdown in the demand for coal, with the decrease in energy demand possibly seeing Eskom save close to R1bn a month in regards to the burning of less diesel."

But Mallinson said when it comes to cost savings on staff, Eskom has no wiggle room.

"That is just not an option."

He said if one looks at how much Eskom needs to spend on servicing its debt, which is about R50bn a year, there are no viable and sustainable short-term cost-cutting options available to the utility.

"Eskom, after all its capital, procurement, maintenance and salary expenses, has about R25bn left over annually. This goes towards servicing its debt, which means it has a constant shortfall of R25bn.

"The best way for Eskom to reduce costs has to be for it to aggressively pursue the build of a solar and wind replacement fleet for its coal-powered stations."

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