South Africa’s debt-ridden state power utility posted a fifth straight loss and warned the gap may widen, while its auditor said that it may not be able to continue as a going concern.
Eskom Holdings SOC Limited’s loss narrowed to R12.3 billion in the year through March, from a restated R25 billion rand a year earlier, outgoing CEO Andre De Ruyter said in an online results briefing on Friday.
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Debt owed by the utility, which supplies more than 90% of the nation’s electricity, fell 1% to R396.3 billion by the end of March, he said.
A loss of R20.1 billion is anticipated for the current fiscal year (ending March 2023), according to De Ruyter.
The government has pledged to take over part of Eskom’s debt and said it won’t allow it to fail.
“Without government support, Eskom will not be able to meet all its debt-service commitments,” Calib Cassim, Eskom’s chief financial officer, said at the results presentation.
The utility repaid loans of R38.9 billion during the financial year, while raising R33 billion, he said.
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The yield on Eskom’s 2028 eurobonds, which don’t carry a government guarantee, rose four basis points to 11.43% by 14:46 in Johannesburg. The yield on benchmark South African government 10-year rand bonds was little changed at 11.78%.
Record load shedding
Eskom has instituted power cuts, known locally as load shedding, for a record 197 days this year to protect the national grid as it struggles to curb frequent breakdowns at its old and poorly maintained coal-fired plants.
The utility doesn’t generate enough revenue to cover its operating costs and interest bill, leaving it dependent on state bailouts to survive.
Deloitte & Touche, Eskom’s auditor, expressed concern that the company may not be able to continue operating and said it had identified irregular expenditure, fruitless and wasteful costs and losses due to criminal conduct.
The auditor’s report found evidence of failure by the utility to take action to correct breaches of the National Environment Management Act or comply with the Public Finance Management Act, Eskom said in a stock-exchange filing.
It also picked up other irregularities, including the purposeful destruction of tender documents in a fire, the possible recreation or falsification of documents and a failure to investigate and report financial misconduct and irregularities.
There is “a material uncertainty relating to Eskom’s ability to continue as a going concern,” Deloitte found, according to the filing.
Leadership Vacuum
Eskom is also confronting a leadership vacuum. De Ruyter, who’s served as CEO for almost three years, plans to leave at the end of March, Chief Operating Officer Jan Oberholzer is set to retire in April and several other top management positions are vacant.
The energy crunch has hamstrung growth and deterred investment in Africa’s most industrialised economy.
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The power supply outlook for next year will be very constrained, and blackouts will continue until an additional 4000 megawatts to 6000 megawatts of generating capacity is added to the grid, De Ruyter said.
In October, the government said it would take over one third to two thirds of Eskom’s debt to help it become financially sustainable, with details to be announced in the February budget.
The release of the utility’s latest financial results were postponed by several months, due to a delay in appointing a new external auditor.
Other highlights:
- Eskom’s generation unit lost R28.6 billion during the financial year, while its other two units made profits.
- The transmission unit will become a separate entity later than planned.
- Earnings before interest, tax, depreciation and amortisation rose 62% to R52.4 billion as revenue increased.
- The company paid R32.5 billion in interest, which eroded profitability.
- The arrears owed by municipalities to the utility rose to R44.8 billion from R35.3 billion the year before.
- The utility had 40 421 employees at the end of March, down from 42 799 a year earlier, with the reduction mainly attributed to attrition and staff taking voluntary severance packages.
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