Eskom’s results announcement comes on the heels of another in July, when Finance Minister Tito Mboweni announced that government will increase financial assistance to Eskom for the current financial year from R23-billion to R49-billion and from R23-billion to R59-billion for the 2020/21 financial years.
During the period under review, Eskom posted a respectable (approximately) 18% improvement in earnings before extraneous items, which is commendable given the current economic conditions coupled with the improvement in its cash liquidity position largely driven by debt funding.
The earnings before interest, tax, depreciation and amortisation (Ebitda) performance was driven by a cost-saving drive. However, a concern to note is the continued use of the open cycle gas turbines that burn very expensive diesel to generate electricity costing R7.5-billion during the period. A further concern regarding this approach is that Nersa has historically not allowed Eskom to recover any of these costs. This means that a significant portion of the Government bailout is funding diesel spending.
A further concern is a persistent increase in coal costs at 16% year on year, which is approximately three times the inflation rate the Reserve Bank is targeting. However CEO De Ruyter has promised that next year coal costs will be well below inflation – but he did not elaborate on how this will be achieved.
Despite this performance, Eskom was at pains to stress that these levels of cost-saving are not sustainable in the long term, especially if they are being made at the expense of maintenance of generating plants which has resulted in the Energy Availability Factor (EAF) of a very concerning 67% for the year. No indication was provided by Eskom about how this EAF will evolve to levels where no load shedding is expected.
Equally, if not more concerning, the results include Government support of R49-billion. R56-billion is being earmarked for debt servicing cost. If this is interest payments, this is truly a disaster for South African taxpayers.