Eskom’s interim results show improvement in financial performance, however Generation performance remains below par
15 December 2021
Eskom achieved R9.2 billion net profit after tax for the six-month period ended 30 September 2021. This is a significant improvement from the R0.2 billion in the same period last year. Eskom also reduced its gross outstanding debt to R392.1 billion in the period, from R463.7 billion a year earlier. This is a further R10 billion reduction in the debt since the beginning of the financial year.
Revenue also increased to R135 billion, a 24.2% year-on-year growth from R108.7 billion in September 2020. This improvement is attributed to a recovery in demand, combined with favourable tariff increases. The recovery was largely driven by the easing of lockdown restrictions, allowing for the return to operations of most sectors of the economy. Improved cost control measures and the higher revenue growth helped increase Earnings Before Interest, Tax Depreciation and Amortisation (EBITDA) to R44.8 billion, a 58% improvement from R28.3 billion in September 2020.
“This significant improvement in a number of key financial indicators is an encouraging development in our efforts to turn Eskom around. This is despite navigating a challenging and uncertain operating environment and the uncertainties brought about by the COVID-19 pandemic during the first half of the year,” said Eskom Group Chief Executive, André de Ruyter.
“As we continue to drive our immediate priorities as outlined in the Eskom Turnaround Plan, the reported progress in some of the key areas of the plan places us in a good position on the road to long-term sustainability,” added De Ruyter.
Despite the substantial improvement in net profit, Eskom forecasts a net loss after tax of R9.1 billion at financial year end in March 2022. This is less than half the previously forecasted net loss of R22 billion for the current financial year, and approximately half the R18.9 billion net loss posted in the year ended March 2021.
This projected loss is mainly due to lack of cost-reflective tariffs, unsustainably high debt service cost, growing municipal arrear debts and sustained high expenditure on diesel for Open-Cycle Gas Turbines (OCGTs) to supplement generation capacity and to reduce loadshedding. Furthermore, Eskom traditionally earns lower revenue in the second half of the year owing to lower tariffs and lower sales volumes.
On the operations front, the Generation division’s performance remains disappointing. The energy availability factor (EAF) stood at 65.27% on 30 September 2021, contributing to 21 days of loadshedding. The below target plant availability also resulted in high utilisation of OCGTs to the tune of R4.5 billion over the period, an increase from the R2.6 billion spent in the same period last year.
“While we accept that this high diesel usage is neither desirable nor sustainable, we are cognisant of the fact that loadshedding costs the country way more. Under the leadership of Phillip Dukashe, my colleagues are making good progress in recovering the previously neglected generation plant. We accept, too, that the pace of this progress is slower than the country desires. We are pulling out all the stops to improve our performance despite numerous challenges,” said De Ruyter.
The decline in generation performance was exacerbated by the explosion of Medupi Unit 4 generator on 8 August 2021 and the Kendal Power Station Unit 1 generator transformer fire on 11 September 2021. These two major incidents accounted to a loss of 1 360MW from the national electricity grid.
Unit 2 of the Koeberg Nuclear Power Station will undergo a long-term outage of about five months starting in January 2022. During this outage the steam generator replacement (SGR) project will be implemented. The SGR project is one of the important projects to extend the life of the power station by another 20 years. During the last quarter of the calendar year, Unit 1 will also be put on an outage for similar SGR modifications and scheduled maintenance.
Koeberg will therefore operate for about 10 months at half capacity, having switched off 920MW of capacity. Coupled with the loss of Medupi Unit 4 and Kendal Unit 1, this means Eskom will operate with reduced output of some 2 300MW for next year, in addition to the high breakdowns we have experienced, increasing the risk of loadshedding.
Eskom continues to pursue the Generation Recovery Programme and Reliability Maintenance Recovery (RMR) Programme with a view to recover operations and achieve sustained improvements in generation performance. Boiler modifications have been completed on all six Medupi units as well as Kusile Unit 1. Similar work is in progress at Kusile Unit 2 and will soon be rolled out to Unit 3.
“We would like to remind the public that to perform these modifications each of these units have had to be switched off for a period of at least 75 days, meaning Eskom has had to cope for 450 days in the case of Medupi without a whole unit that would ordinarily contribute some 500MW to the national grid. The modifications being applied at Kusile will similarly cost the country at least a whole unit’s capacity for half a year,” said De Ruyter.
The new build is progressing well with Medupi Unit 1 achieving commercial operation on 31 July 2021, adding installed capacity of 794MW to Eskom’s base and signifying completion of construction and commissioning activities on the 4 764MW Medupi project. There is also good progress on Kusile Unit 4, which is on course for commercial operation by the target date of June 2022.
The Transmission and Distribution network delivered a stable performance. To strengthen the transmission network, 1 065MVA of transformer capacity and 44.1km of transmission lines were installed. A total of 38 256 new customers were connected to the grid under the Department of Mineral Resources and Energy’s (DMRE) electrification programme. Eskom aims to connect 99 724 customers by the end of the financial year.
Unpacking the financial performance, Chief Financial Officer, Calib Cassim, explained that Eskom has obtained R16.6 billion of its borrowing programme for the current financial year. Eskom intends raising total funding of R41.9 billion by 31 March 2022 to strengthen its liquidity position.
Eskom has received government support of R31.7 billion in July as committed for this financial year. While the State’ support has helped alleviate pressure on the cash flow, Cassim reiterated that a sustainable solution is required for Eskom’s capital and tariff structure if the utility is to achieve long-term financial sustainability.
“The bottom line is that cash from operations remains insufficient to meet debt servicing and some capital investment requirements. To improve our financial position, we require a considerable reduction in the debt profile and a sizable increase in cash flows through cost-reflective tariffs. Eskom cannot continue to rely on government’s equity support to service its debt commitments,” said Cassim.
On the issue of municipal debt, very limited success has been realised in managing outstanding municipal debt, which has escalated to unsustainable levels. As at 30 September 2021, total municipal debt was at R40.9 billion.
In this regard, Cassim stated that: “It is clear Eskom cannot solve municipal debt challenges on its own. Continued support and cooperation from government and all key stakeholders is crucial to address the root causes of the problem. As such, we are grateful for the support by the Eskom Political Task Team (PTT) led by the Deputy President and its Multidisciplinary Revenue Committee (MdRC), although much still needs to be done to achieve the desired results.”
Eskom continues to engage in the Active Partnering model, where it renders support to capacitate municipalities to improve collection and maintenance of municipal infrastructure. To date, 45 municipalities, including all the top 20 defaulting municipalities, have been approached. Progress was, however, slowed by the elections.
With regards to its corporate restructuring process, Eskom is on track to meet the target for legal separation of the Transmission business by 31 December 2021 as set out in the Department of Public Enterprises (DPE) “Roadmap for Eskom in a Reformed Electricity Supply Industry". However, certain dependencies outside of Eskom’s control may delay the operationalisation of the Transmission company by that date.
Issued by Eskom Media Desk, 15 December 2021
