Eskom missing long-term strategy
The Organisation Undoing Tax Abuse (OUTA) welcomes the report by the Portfolio Committee on Public Enterprises on its investigation into Eskom which implicates previous ministers Lynne Brown and Malusi Gigaba and others. The committee’s recommendation that Parliament hand this report and the record of evidence over to the Zondo Commission. OUTA contributed to this inquiry.
OUTA remains deeply concerned that South Africa’s principal electricity supplier Eskom does not have a sustainable business model or a comprehensive financial plan to claw itself out of the debt hole it is currently in.
While the appointment of Calib Cassim as Eskom’s permanent Chief Financial Officer may offer some stability and comfort that the rot will stop, OUTA notes the power utility’s declining revenues which inhibit it from turning into profitability or controlling its ever-increasing operational costs.
“If Eskom was a private company, it would either be under business rescue or in liquidation as we speak, given the reality that Eskom is technically bankrupt,” says Ronald Chauke, OUTA’s Energy Portfolio Manager.
While presenting the utility’s 2018/19 interim results this week, Eskom revealed that its debt has grown from R40bn in 2007 to R400bn and is estimated to exceed R600bn in the foreseeable future. In addition, Eskom’s huge staff complement including fixed-term contractors has increased to 48 628 in 2018 from 47 658 in 2017, costing South Africans R29.5bn for 2017/18.
OUTA is concerned that there appears to be a lack of urgency and no holistic and integrated long-term strategy to turn around the power utility and ultimately lower prices for the public. While Eskom chair Jabu Mabuza’s nine-point plan is commendable in addressing immediate problems, the 2035 strategy he promised the public earlier this year is still needed.
“The nine-point plan is merely fire-fighting by the Eskom executive who should have by now developed a comprehensive future roadmap that will take the utility to a financially sustainable path,” says Chauke.
What is even more concerning is the fact that the energy availability factor (EAF) was 75.01% in September 2018, below Eskom’s target of 78%. This further dropped to 74.2% in October 2018. The impact of this decline in EAF has resulted in the increased use of emergency resources such as open cycle gas turbines which are diesel-powered and have already cost Eskom R572m and are projected to cost up to R1bn by the end of the financial year.
Profit before tax has declined from R8.9bn (September 2017) to R1bn by 30 September 2018, while sales volumes are also down by 0.8% and revenue was up by 2.7% on the back of tariff hikes. “This massive decline in profit is a precursor for huge losses that one can expect at the end of the financial year,” says Chauke.
OUTA is also very concerned about the 25% increase in municipal arrear debt over six months to R17bn including interest (Mar 2018: R13.6 billion) and this is probably the biggest issue facing the SOE right now.
It is imperative that Eskom develop and publicise a long-term plan that includes a sustainable business model that will contribute to South Africa’s economic growth and provide financial relief to its consumers.