Eskom headed for another full-year loss

South Africa’s Eskom Holdings SOC Ltd. is headed for another full-year a loss as fundamental problems remain even after making a profit of 83 million rand ($5.5 million) in the first half of its fiscal year.

The improvement in net income for the six months though September follows a loss of 1.9 billion rand a year earlier, the company said Monday in a statement on its website. The utility forecast an annual loss of 22 billion rand that will mark the fourth straight year of being unprofitable.

“Significant financial challenges remain, predominantly related to tariffs not being cost-reflective, coupled with an unsustainably high debt burden,” it said.

Electricity sales declined by an unprecedented 10.3% as lockdown measures designed to control the spread of the coronavirus pandemic dented demand.

The loss of sales exacerbates an existing downward trend for the monopoly that provides almost all of South Africa’s power and adds another obstacle to its already troubled finances. Timelines for a turnaround plan that will split the business into transmission, generation and distribution businesses have been extended.

Systemic Risk
Debt securities and borrowings were reduced by 20 billion rand to 464 billion, in part due to the strengthening of the rand since March. As about 66% of that is guaranteed by the South African government, “Eskom’s level of debt is a systemic risk to the fiscus and the country as a whole,” the company said. It expects to raise funding of about 40.7 billion rand by the end of March.

“In order to improve our financial position in the longer term, we require a considerable reduction in the debt profile or a sizable increase in cash flows through cost-reflective tariffs,” Eskom said.

The government, labor unions and business groups last week endorsed a pact to find ways of reducing the debt.

Operational performance is slowly improving, Eskom said. Still, it was unable to meet demand due to ill-maintained generation units that forced the utility to implement power cuts for 19 days from July through September. The company this weekend had rotational blackouts, known locally as load-shedding, for the first time since September.

Main Image: Oudsthoorn