The release of Eskom's 2017/2018 financial results revealed a net loss of R2.3 billion and irregular expenditure of R19.6 billion since 2012, revealing the extent of its financial distress reports analyst Frost & Sulivan.
The results also revealed liquidity shortfalls and other operational challenges which will require attention if there is to be any hope of turning around the fortunes of Africa¹s largest utility. This is according to Lehlohonolo Mokenela, an Energy and Environment Industry analyst at Frost & Sullivan, who believes there is a lot of hard work and decisions ahead for the top management at Eskom. This has included not paying employees bonuses as one of the austerity measures taken by Eskom for the coming year.
“Other key cost groups such as primary energy will need to be the main focus if Eskom is to maintain its growth Earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 26%. Energy sales growth remained flat over the past 12 months, largely due to the sluggish performance of the economy,” says Mokonela. “The fact that Eskom went from a profit of R888m in 2016/2017 to a R2.3 billion in 2017/2018 is attributed to finance costs, which increased by over R6 billion for the year. The financial concerns brought to light in the 2017/2018 financial results included the decline in net cash from operations from R45.8 billion to R37.6 billion this year as well as the R13.6-billion owed by a number of municipalities.”
Of concern for the medium to long-term is completing the Medupi and Kusile power stations in line with the expected future energy needs. Eskom has met with labour unions and has offered two proposals of increases above 7% between the current year and 2020. The financial results speak for themselves and if Eskom is to improve financially going forward, strict financial budgets need to be implemented to ensure improvement in the long term.
“The strategy review expected to be completed by September 2018, will hopefully see increasing use of smart energy technologies with a larger emphasis on implementing smart grid technology,” said Laura Caetano, an energy and environment research analyst at Frost & Sullivan. “This would be in line with the mandate given by the Southern African Power Pool to all its member utilities to adopt digital solutions in order to better facilitate cross-border electricity flows in future.”
According to Eskom spokesman Jabu Mabuza, IPPs are cost-neutral to Eskom and pose no financial risk to the utility which acts as a middle man. “This might be the case in the short term, however when Medupi and Kusile come online the system will be in overcapacity and might result in stranded assets for Eskom," concluded Caetano.