Power utility Eskom on Tuesday recorded a net loss after tax of R20.7 billion in the year ended March, up from a previous loss of R2.3 billion.

This was revealed at the release of the utility’s 2018/2019 integrated annual results at its Megawatt Park offices in Johannesburg.

The board of the utility led by Jabu Mabuza said while the results were expected, they are unfavourable.

The board chair said the results come at a tumultuous time for the country and at a time the utility faces a R440 billion debt.

Outgoing Group Chief Executive Officer (GCEO) Phakamani Hadebe said the last 18 months as head of the utility have been challenging.

Remarking on the results, he said: “We were unfortunately oblivious to underlying factors including declining maintenance spend over years that was faced by power stations.”

Hadebe said the rate of increasing cost has always been ahead of revenue. For example, between 2010 and 2018 there have only been four instances where Eskom has been able to generate enough income or earnings to service its debt.

“That happened due to high tariff increases. It also happened when government recapitalised [the utility],” said Hadebe.

Eskom, he said, is working on cost containment measures, with employee benefit costs being contained and head count reduced.

Primary energy costs (including coal, liquid fuels and Independent Power Producers) increased to R99.5 billion (March 2018: R85.2 billion). The usage of open-cycle gas turbines (OCGTs), Eskom and independent power producers (IPPs), increased substantially driven by poor plant performance and supply constraints at a cost of R6.5 billion.

Expenditure on renewable IPPs increased to R22.2 billion for the year from a previous R19 billion primarily due to the commissioning of new renewable IPPs during the year.

Revenue challenges

Eskom’s revenue was negatively impacted by non-payment by municipalities as well as tariffs that are not cost reflective.

“With declining revenue Eskom should receive cost reflective tariffs in order for it to service debt. The appropriate price should be 120 cents per kilowatt hour but what we’re being paid now is 90 cents per kilowatt hour,” he said, adding that other challenges are of the utility’s own making.

“In the past five years, the sales volumes annually have decreased by about 1% equating to about R2 billion cut in revenue. During the year under review the sales volume dropped by 1.8%. Costs of Eskom has been rising, revenue decreasing and the bottom line has been decreasing.

“We are now facing a death spiral,” said Hadebe.

Non-payment by municipalities and Soweto

Also compounding the challenges at the utility was the non-payment of services by Eskom to municipalities, which Hadebe said is of concern.

“Non-payment by municipalities has been a cause for concern, this has increased from R13.5 billion and by the end of the year it was R19 billion. Now it’s at R22 billion. The speed with which its moving is of concern,” said the outgoing GCEO who will be leaving the utility at the end of July 2019.

Source: SA News

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