CFO Calib Cassim describes these savings as critical, particularly in light of Covid-19’s impact on Eskom.
Eskom has published its results for the financial year ended March 2020, reporting a net loss after tax of R20.5 billion, despite a revenue of R200 billion.
The state-owned power utility cited significant operational and financial challenges, resulting in Stage 6 load shedding during December 2019.
According to Eskom CFO Calib Cassim, to improve its financial situation the power utility has paid particular focus on its capital and operating expenditure, coal inventory optimisation, revenue recovery initiatives and increased international revenues. He said that the company performed well in this regard, achieving savings of R16.3 billion against a target of R6.2 billion.
Calib said that Eskom has identified total targeted savings of R63 billion by the 2023 financial year.
“These savings are absolutely critical, particularly in light of the impact of Covid-19, which will no doubt have a negative impact on Eskom’s finance over the next few years. The reality is that our financial results for the 2021 financial year are expected to be similar to FY20, before the fruits of long-term improvements materialise,” said Calib.
Unpacking the utility’s financial performance, Calib noted there was an improvement in Eskom’s financial position owing to government equity support of R49 billion during the year and R56 billion allocated to the 2021 financial year.
Calib indicated that cash from operations is insufficient to service Eskom’s debt commitments and therefore the support from government was necessary. “But the company cannot rely on government support for survival,” he said.
During the year, the company raised R50.9 billion in debt, against the target of R46 billion. However, 64 percent of the funding requirements for the 2021 financial year have already been secured.
Furthermore, the report stated that management has made significant changes to arrest the operational and financial decline.
“We have implemented assertive collection strategies against the largest municipal defaulters, which has resulted in a 17 percent increase in payment levels from these customers during FY21. This is one of the key areas that require a concerted effort if Eskom is to embark on a sustainable course. Every consumer of electricity needs to pay for what they consume,” said Eskom CEO Andre de Ruyter.
He said that, operationally, Eskom ramped up its reliability maintenance programme of its ageing fleet of coal-fired power stations in the period, which contributed to load shedding increasing to 46 days. Coal stockpiles were significantly improved to a normalised average of 50 days, from 36 days the previous year.
He explained that, among other operational interventions, Eskom has also embarked on correcting the design defects that have inhibited the performance of its new power stations. These repairs will be completed in the third quarter of 2021, and would help significantly increase available generation capacity.
He added that cost savings alone will not result in Eskom achieving long-term financial sustainability as tariffs have to migrate towards cost reflectivity.
“In order to address our unsustainable legacy debt, we either have to rely on bail-outs funded by the tax-payer, or improve our financial situation by NERSA allowing Eskom to charge cost-reflective tariffs. Paying heed to the Minister of Finance’s Medium Term Budget Policy Statement, we believe the latter is best for Eskom and South Africa,” he said.
Heeding the finance minister’s call to tighten the belt, Eskom does not intend to request another taxpayer bailout beyond current commitments, the CEO said.
Other highlights from the report include:
- Cost savings of R16,3 billion achieved against a target of R6,2 billion, largely absorbed by R7,5 billion spent on diesel to minimise load shedding;
- Improvement in EBITDA to R37 billion arising from growth in revenue and contained operating costs;
- Operating profit (EBIT) of R9,2 billion;
- Liquidity situation substantially improved, R23 billion cash and cash equivalents, compared to R2 billion the previous year;
- Municipal arrear debt increased to R28 billion in March 2020, from R19,9 billion in March 2019 – Soweto payment rates have increased to 22 percent, from the very low base of 12 percent;
- Generation plant and environmental performance remain a challenge with energy availability declining to 67 percent;
- Primary energy costs rose 16 percent following the procurement of additional coal to return coal stockpiles to 50 days average;
- All six Medupi Power Station units are now connected to the national grid, five in commercial operation.
