Eskom has announced that it achieved progress in some key areas of the business, setting it on a path to operational and financial stability.
According to the power utility, this is based on the interim results for the six-month period ending in September 2020.
Eskom said the earnings before interest, taxation, depreciation and amortisation (EBITDA) increased to R28.1 billion from R26.4 billion last year.
Meanwhile, the State-owned entity recorded a net profit, after-tax, of R83 million, while navigating a very challenging operating environment.
“Revenue grew to R108.7 billion compared to R107.5 billion in the same period last year, marking an increase of 1.1%,” said Eskom in a statement released yesterday.
However, sales volumes dropped 10.3% in the period due to the COVID-19 national lockdown to curb the spread of infections.
Eskom also contained its employee benefit costs and operating expenses, with employee benefit costs marginally increasing to R16.7 billion, compared to R16.4 billion in September 2019.
“In its attempts to rein in costs, Eskom relied mainly on natural attrition and voluntary separation packages for managerial staff to reduce headcount, and there were no salary increases or incentive bonuses for managerial level staff,” Eskom said.
The utility said the primary energy costs rose to R54.3 billion in the period, versus R52 billion in the same period last year, a 4.4% increase.
Meanwhile, Eskom has redoubled its efforts to curb coal costs, which remained relatively manageable, with an increase of only 4.6% in the average purchase cost per ton of coal, compared to 14.2% in September 2019.
“However, Eskom and IPP [independent power producers] open-cycle gas turbines (OCGTs) were utilised frequently to support a strained power system,” the utility said.
According to Eskom, OCGT’s generated 496GWh [gigawatt hours] for R1.4 billion in the period, an increase from the R1.1 billion spent on 331GWh during the same period last year.
Group Chief Executive, André de Ruyter, reiterated that Eskom’s top priority remains addressing operational and financial challenges and return to financial sustainability.
“Given the challenging environment in which we operate, this will require extraordinary efforts from every Eskom employee, and continued support from government and all South Africans.
“The implementation of our reliability maintenance programme continues to bear fruit and positively affecting plant performance,” De Ruyter said.
He explained that the “divisionalisation” of Eskom has been finalised, with the implementation of the new operating models of the functionally separate entities progressing well for completion in the first half of 2021.
Municipal arrear debt remained an area of great concern, with R32.9 billion incurred by 30 September 2020, from R25.1 billion in September 2019.
According to Eskom, the top 20 defaulting municipalities constitute 80% of the total invoiced municipal arrear debt, with 48 municipalities carrying arrear debt of more than R100 million each by 30 September this year.
“Despite having achieved 48% of our funding requirements during the period under review, our access to funding in both domestic and foreign markets remains constrained due to low investor confidence as a result of poor financial performance, saturated borrowing capacity and the recent rating downgrades,” said Eskom Chief Financial Officer, Calib Cassim.
Meanwhile, he said these factors have a direct effect on market appetite and Eskom’s future cost of borrowing, and may hinder the execution of the borrowing programme.
However, Cassim said Eskom will continue to explore all avenues.
He cautioned of Eskom’s financial performance, which is expected to decline in the second half of the financial year due to seasonality factors, increased maintenance and expenditure, the security of supply, coupled with reduced demand and lower summer tariffs.
“While green shoots have begun to emerge in the economy with the phased easing of lockdown restrictions, the recession and continued uncertainty around COVID-19 is still expected to threaten future sales volumes, the cost of production and customers’ ability to pay,” Cassim said.
By the end of the 2021 financial year, he said the utility is expecting to record an after-tax loss of approximately R22 billion, due to continued negative impact of the lower than adequate tariff increase with lower sales volumes due to COVID-19.
Cassim said dealing with liquidity remains a top priority, as it drives its turnaround strategy.
He said five key areas are still the focus, including improving the income statement, achieving revenue certainty, cost optimisation and efficiencies, reducing arrear debts, as well as optimising the balance sheet.
“Cost savings alone will not solve Eskom’s financial position; the price of electricity must migrate to prudent and efficient cost reflectivity, while embedding the user-pay principle,” Cassim said