SOUTH African utility Eskom released its annual financial report on 23 December 2022, probably hoping no-one would notice, but facts and figures don’t lie.
According to popular load shedding app EskomSePush, there were 2,900 hours of load shedding during 2022. This translates to 121 days which is more than double 2021’s 48 days.
Let’s examine the technical and financial metrics behind this grim reality.
Eskom reports an improvement on all key financial indicators resulting in it incurring a net loss after tax of R12.3 billion in the financial year ended March 2022. This is a 51% improvement on the R25bn net loss reported for the previous financial year.
“This is largely attributable to the unsustainably high finance costs and primary energy expenses, specifically the expenditure to supplement generation capacity through the usage of Open Cycle Gas Turbines (OCGTs). Expenditure on fuel for the OCGTs doubled to R14.7bn, from R7bn in 2021,” reads the report.
A lesson in spin
“Due to higher sales volumes and the favourable electricity tariff increase of 15.06% revenue increased to R246.5bn, from R204.3bn in March 2021. Earnings before interest, tax depreciation and amortisation (EBITDA) improved by 61% to R52.4bn, from R32.6bn the previous year. The gross outstanding debt was further reduced to R396.8bn in the period, from R401.8bn a year earlier. At the operating level, Eskom increased profit more than three times to R20.4bn, from R6bn in March 2021.
“Cash from operations improved from R31bn to R53.4bn, mainly because of the substantial increase in EBITDA. However, the cash from operations was not sufficient to cover debt servicing costs of R70.7bn. Despite the severe generation capacity constraints in this period, electricity sales volume increased 3.4% to 198,281GWh, from 191,852GWh in 2021,” reads the report.
Outgoing CEO and survivor of a murder attempt, André de Ruyter, is quoted as saying: “The year 2022 was a tremendously difficult one for Eskom. Not all our priorities as outlined in the Eskom Turnaround Plan could be achieved, particularly improving the reliability and predictability of the generation fleet following years of inadequate maintenance coupled with the current and increasing shortage of generation capacity of between 4,000MW and 6,000MW in the country,” said André de Ruyter, Eskom Group Chief Executive.
“Eskom received R31.7bn equity support from government during the 2022 period. While this government support, and the cost containment measures helped improve liquidity, Eskom’s liquidity remains constrained because of unsustainably high debt servicing costs. Cash from operations remained insufficient to meet debt servicing and some capital investment requirements,” said Calib Cassim, Eskom’s CFO.
Eskom dragged down by debt
Local governments remain a liability as municipal and residential area debt continues, with arrear debt by municipalities escalating by R9.5 billion year-on-year, reaching a high of R44.8 billion in March 2022.
Cassim further added: “A net loss after tax of around R20 billion is expected for the financial year ending 31 March 2023. This is mainly attributable to OCGT spend exceeding the Nersa allowance, growth in municipal arrears and a shortfall in recovering debt service costs in the electricity tariffs.”
The report indicates that the transmission division continued to deliver resilient and improving performance while the distribution network performed at acceptable levels despite the negative effects of infrastructure and cable theft.
The International Energy Agency, in its Coal 2022: Analysis and forecast to 2025 report states that due to continued weak demand from South Africa, Africa’s coal demand is forecast to decrease for the third year in succession to 180 Mt (-9 Mt). Until 2025, it expects consumption to rebound to 2021 levels (~190 Mt), which is well below the pre-pandemic level of 2019.
In September 2022 rolling blackouts in South Africa reached record levels, forcing a return to stage six of load-shedding. So far, 2022 has been the worst year of load-shedding on record (chances are, 2023 figures will surpass this).
The International Energy Agency report highlights that South Africa has ~46 GW of generation capacity, sufficient to meet a peak demand of just ~32 GW. However, less than 60% of the capacity is available.
What next?
Despite the horror revealed, the South African government has announced a plan to attract more private investments in new generation capacities, raise Eskom’s maintenance budget and start electricity imports from Botswana and Zambia. Private investors? A rich proposition.
The International Energy Agency projects South Africa’s coal consumption to increase by 5.3% from 2022 to 2025 as the coal power plant fleet’s performance increases. A proposed large-scale 3.3GW coal-fired power plant project in the Musina-Makhado energy and metallurgical special economic zone has been cancelled and replaced with renewable sources.
A popular retort from Eskom is the blaming of ageing infrastructure. However, an analysis by website Daily Investor showed that the age of a power station does not automatically result in higher breakdown rates and a lower Energy Availability Factor (EAF).
This story was written by Richard Janse van Vuuren and first appeared on the Mining Review Africa website.
