'Debt-driven' Eskom not ruling out load shedding for remainder of year

Weak financial ratios, reduced generation performance and low coal stock levels have again raised the spectre of load shedding for power utility Eskom.

Announcing the interim financial results for the six months ended September 30, CEO Phakamani Hadebe warned that although liquidity had improved, the state-owned company remained a "debt-driven entity" with severe financial challenges.

Hadebe said several issues contributed to the current financial position, including rapidly rising municipal debt and poor coal supply.

Profit before tax dropped form R8.9bn in September to R1bn, while municipal debt ballooned from R13.6bn in March to R17bn, Parliament heard in November.

Net profit plunged 89% to R671m, from R6.3bn last year.

Coal supply

Insufficient coal supplies continued to put pressure on Eskom's operations, mainly due to Tegeta-related challenges, after the Gupta-owned company failed to meet its supply obligations and was placed under business rescue.

"The past six months have been a difficult period for Eskom...with steady decline on coal levels threatening the firm's ability to keep the lights on," said Hadebe, adding that "we are a debt-reliant entity".

Load shedding not ruled out

"Given the current challenges, load shedding cannot be ruled out," he said.

Eskom said most financial ratios deteriorated and were expected to worsen further towards year end, alongside the impact of this year's wage settlement on the firm's finances.

Further losses were expected in the current financial year.

"The full impact of the wage settlement will be experienced over the next six months", the power utility said. 

The company said it had secured 73% (52bn) of its required funding for 2018/19, and the rate for 2019/20 stood at 22%.

Hadebe said Eskom's liquidity challenges were a result of low tariffs, declining sales volumes and a rising cost base.

The power utility said cash from operation activities was not sufficient to cover debt servicing, with funding raised to service capital expenditure as well as debt.

Eskom has maintained that it needs to raise tariffs to recoup costs, as it has been selling electricity at a rate lower than production.

The entity has challenged the National Energy Regulator of South Africa's decision to grant it a 5.23% tariff increase.

A R350bn government guarantee facility has been extended to Eskom, with R252bn utilised on draw downs, it said.

On Tuesday, Eskom announced it had entered into a loan agreement with the African Development Bank Group for R2.8bn and $25m, totalling over R3bn. The sum of $25m equals approximately R347m at current exchange rates.

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