Information from Eskom

Eskom tabled its financial results for the financial year 2022/23 recently. According to Eskom’s acting chief financial officer (CFO), Martin Buys, the only key financial indicator that showed an upward trend was revenue, which grew by R11,9 billion from R247,6 billion last year to R259,5 billion in the current financial year. This is mainly attributable to the standard tariff increase of 9,61% allowed by the National Energy Regulator of South Africa (Nersa), he said.

But despite the higher tariff, the power utility’s net income fell to its lowest-ever level. The utility posted a loss of R23,9-billion for the 2022/23 financial year – twice that posted for the previous year. And, although it received a whopping R21,9 billion from Treasury, its net debt increased by 2% to R399-billion.

Key figures from the 2023 results report

• Revenue increased to R259,5-billion due to 9.61% tariff increase, however negated by a 5% decline in sales volumes
• Decline in EBITDA by R14,9 billion, from R53 billion in 2022 to R38 billion in 2023
• Operating profit significantly declined to R5,6 billion from R20,9 billion.
• The net loss after tax increased to R23,9 billion, double the R11,9 billion incurred in 2022
• Open-cycle gas turbines (OCGTs) spent increased twofold to R29,7-billion from R14,7-billion in 2022
• Arrear municipal debt remains an area of concern and had accumulated to R58,5-billion by March 2023
• Gross debt of R424-billion attracted debt servicing costs of R72 billion comprising capital repayments of R39 billion and interest payments of R33 billion
• R21,9-billion equity support was received from Treasury
• Eskom’s net debt was up by 2% from R389 billion in 2022 to R399 billion as at the end March 2023
• The energy availability factor (EAF) continued to deteriorate, reaching a low of 56,03% from 62,02% in 2022, resulting in 280 days of loadshedding
• Generation unplanned maintenance was at 31,92% (2022: 25,35%), however, planned maintenance remained acceptable at 10,39%
• Kusile Unit 4 achieved commercial operation on 31 May 2022
• Transmission network performance declined while Distribution network continued to achieve good performance

Causes of this incredibly high loss

Primary energy expenses, specifically the expenditure to supplement generation capacity through the usage of open-cycle gas turbines (OCGTs), remained the biggest contributor to the financial loss, with a total of R29,7 billion spent on both Eskom and independent power producers (IPPs) OCGTs in the period under review. This is more than double the R14,7 billion spent in the previous year.

Poor generation performance

Generation performance continued to deteriorate with the overall EAF declining to 56.03% vs. 62,02% in 2022. Unplanned load losses increased to 31,92% from 25,35% while planned maintenance performed at a similar level as last year, 10,39% in 2023 and 10,23% in 2022.

Delays in connecting privately generated power to the grid

The supply constraints were partly worsened by the delays in connecting more capacity to the grid through IPP procurement as expected under the Integrated Resource Plan (IRP2019), resulting in a constant energy shortfall of approximately 5100 GWh for the year. This shortfall meant an increase in stages and frequency of load shedding and over utilisation of OCGTs. Loadshedding was implemented on 280 days during the year under review.

In addition, the flue gas duct failure incident at Kusile Power Station in October 2022, which resulted in Units 1, 2 and 3 (the only parts of Kusile which were providing power to the grid) being out of service for almost a year, removing 2100 MW of generating capacity from the grid. At the same time, Koeberg Unit 1 remained on long-term outage, which is nearing completion and will be followed by the Unit 2 outage. Over and above the unavailable units at the other power stations, the unavailability of the Koeberg unit and the Kusile units meant a shortfall of approximately 3000 MW during the winter season. This equated to three stages of loadshedding.

Generation recovery programme

The generation recovery programme is underway and continues to show positive signs. The six priority stations: Duvha, Kendal, Kusile, Majuba, Matla and Tutuka which were targeted to improve performance have shown gradual improvement. The well-performing stations (Medupi, Lethabo, Matimba and the peaking plants) were also safeguarded. Sustained and improved performance at these stations coupled with gains at the other power stations will enable Eskom to achieve its Generation recovery plan target of an average of 60% for the financial year and 65% for the month of March 2024.

On the new build programme, Kusile Unit 4 achieved commercial operation on 31 May 2022, Kusile Unit 5 experienced a setback and was delayed by a year due to a gas air heater fire incident in September 2022.

The Koeberg Power Station has continued to operate safely and reliably for almost 40 years. The process to amend the operating licence to enable Koeberg to continue providing safe, clean, and reliable power to the grid for another 20 years is under consideration by the National Nuclear Regulator (NNR).

Distribution and transmission

Distribution and Transmission networks delivered variable performance. Distribution remained more resilient, with frequency and duration of supply interruptions well within target. A total of 326 km of transmission lines was added to strengthen the grid.

Unbundling

The unbundling of Eskom into three: Generation, Transmission and Distribution is underway, with the legal separation of the National Transmission Company of South Africa (NTCSA) at an advanced stage.

CFO's unbelievable statement

“Our biggest financial challenges remain the lack of cost-reflective tariffs, excessive use of OCGTs, above inflationary cost increases, non-payment by customers and Eskom’s debt burden. Given these circumstances, a similar net loss after tax is expected for the financial year ended 31 March 2024. This is unfortunately an undesirable situation we find ourselves in,” remarked Buys.

Really? Is that the best he can say? The utility has just presented its worst-ever financial report, and all the CFO has to say is that the utility finds itself in an undesirable situation. Despite the evidence of fraud, corruption and theft, mismanagement, and poor leadership, the CFO wants another tariff increase (to make it "cost-reflective", no doubt). Why not reduce costs to match the income? Why not stem the outflows of cash due to over-charging, theft and corruption?

Can Eskom recover?

Financial commentators are beginning to suggest that Eskom has reached, or very soon will reach, the point of no return. Its ballooning debt, failure to provide reliable, affordable electricity, and its inability to collect arrear debt from defaulting municipalities, are evidence of its ultimate demise. This power utility, which government officials like to say is "too big to fail', has failed. Miserably. And it will continue to fail until the government (the sole owner of the utility) takes realistic and intelligent steps to bring about a real turnaround strategy. And those decisions will have to include the prevention of political interference in the affairs of the power utility - including the appointment of unsuitable people to positions of authority within the utility, the swift prosecution of corrupt officials, employees, and suppliers, with the guilty facing lengthy jail terms.