Eskom financial performance expected to get worse
Eskom continued to deliver improved operational performance in
the financial year ended 31 March 2018, despite the financial
and governance challenges facing the company.
Medupi Unit 5 achieved commercial operation on 3 April 2017
after completing performance, reliability and compliance tests.
This was followed by Kusile Unit 1 that achieved commercial
operation on 30 August 2017, and Medupi Unit 4 on 28 November
2017.
The three units have added total installed capacity of 2 387MW
to the national grid, said Eskom on Monday.
Furthermore, Kusile Unit 2 and Medupi Unit 3 have been
synchronised to the national grid and are expected to become
fully operational within six to nine months.
The power utility said it was confident the new build programme
will be completed by 2022/23, barring delays as a result of
contractor performance, industrial action or other issues
outside its control.
Plant availability improved marginally to 78% compared to 77.3%
in the same period last year. Planned and unplanned outages
were also kept within the targeted range of 10% each.
Speaking at the announcement of Eskom’s financial results,
Group Chief Executive Phakamani Hadebe said: “Despite
satisfactory progress being maintained on the new build
programme, as well as improved operational performance for the
current financial year, Eskom continues to face significant
challenges in the short to medium term.
“Revenue levels remain unsatisfactory, and the tariff increase
of 5.2% for the current financial year further compounds the
impact of the 2.2% tariff we received last year, and is
therefore not expected to lead to much improvement.”
Hadebe said levels of arrears debt, especially from
municipalities, remain unacceptably high. “In the short term,
our focus will remain on cost efficiencies to support financial
sustainability.”
Eskom is currently undertaking a strategy review, expected to
be completed by September 2018.
The aim is to ensure the company has an integrated strategy
that addresses not only its current challenges, but also
ensures that the future direction is clear and focuses on
stabilising the organisation.
Eskom’s acting chief financial officer Calib Cassim said the
company’s financial health has deteriorated in recent years due
to lower electricity demand, low tariff increases, and
above-inflation cost increases.
The financial performance is further expected to deteriorate
before improving.
Earnings before interest, taxes, depreciation, and amortisation
(EBITDA) increased from R37.5 billion to R45.4 billion mainly
due to containment of operating expenses.
Eskom posted a net loss of R2.3 billion largely due to a
substantial rise in depreciation and net finance cost.
Depreciation increased to R23 billion from R20 billion as a
result of new power plants being put into commercial operation.
Finance cost, after capitalisation, increased to R26 billion
compared to R19.6 billion in the same period last year. This
was mainly attributable to increased borrowings and a reduction
in borrowing cost capitalised as new power plants being brought
into commercial operation.
“Cost containment alone will unfortunately not solve Eskom’s
financial position. It is therefore important that the price of
electricity should migrate towards cost reflectivity,” said
Cassim.
Eskom chairperson Jabu Mabuza said “despite achieving good
operational performance, Eskom experienced a tumultuous year,
characterised by liquidity issues coupled with a myriad of
governance related challenges which mainly stemmed from the
previous financial year’s qualified audit”.
“Eskom has suffered an absence of ethical leadership at the
highest level for some time, but we aim to rectify that as a
matter of urgency. We believe this is one of the principles
underpinning the stabilisation of Eskom and to set it up for
sustained success, while fulfilling both its commercial and
developmental mandate,” he said.
Eskom received a qualified audit opinion for the year under
review as the external auditors could not rely on the process
in place to ensure the completeness of irregular expenditure
reported, fruitless and wasteful expenditure and losses due to
criminal misconduct.
Irregular expenditure rose to R19.6 billion from R3 billion
recorded previously due to the extension of the verification
and clean-up scope to go as back as far as December 2012.
Mabuza said: “The qualified audit must be looked at within the
perspective of our intensified efforts to clean up which has in
the medium term surfaced further irregularities.
“While we are disappointed that a qualified audit could not be
avoided, we are comfortable that great strides have been made
in our key focus areas with a number of initiatives being set
in motion to address our key challenges in a sustainable
manner.
“Our challenges cannot be fixed overnight, as the damage was
also not done overnight. We have to take some short-term pain
to achieve the long-term gains and the Eskom of the future we
all want to see,” Mabuza said.
Hadebe said: “We are committed to turning around this
institution. A strategic review is being undertaken to
re-energise, shift direction and set a firm foundation for
Eskom’s growth by strengthening Eskom’s financial position and
balance sheet, reviewing the business model to respond to
global energy industry changes, growing the business into new
markets and products, improving trust and restoring labour,
investor and stakeholder confidence as well as reviewing the
IPP and coal strategy.”
Read: Eskom counts R2.3 billion in
losses as irregular spending blows up to R19.6
billion
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