Eskom’s planned separation to miss year-end deadline
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Eskom’s planned separation of its transmission unit looks set to miss the year-end deadline as the power supplier remained in the red, with its debt still north of R400 billion.
The struggling power utility yesterday reported a loss of R18.9 billion after tax for the financial year ended March 31, down from a R20.5bn loss the previous year.
Eskom said this was mainly due to the very high net finance cost of R31.5bn for its largely unsustainable debt, which turned its operating profit of R5.8bn into this massive loss once again.
Chief executive Andre de Ruyter, however, said Eskom managed to reduce its gross debt by R81.9bn this financial year - a 16.9 percent reduction - to an outstanding debt of R401.8bn.
De Ruyter said Eskom’s long-term objectives of achieving operational and financial sustainability were dependent on the successful implementation of the turnaround plan currently underway.
“The turnaround plan focuses on operations recovery, improving the income statement, strengthening the balance sheet, driving business separation and bringing about a winning, can-do culture,” De Ruyter said.
However, De Ruyter admitted that the finalisation of separation of the transmission entity by December 31 was at significant risk as a number of dependencies were lagging behind.
He said their intention remained to comply with the timelines set out in the Department of Public Enterprises Roadmap, despite the obstacles encountered.
“We are on track, by Eskom’s estimates, to deliver business separation with transmission separation expected to reach completion by December 2021,” he said. “The timelines, however, are aggressive.”
The separation of Eskom into three units - generation, transmission, and distribution - has been a big headache for the utility since De Ruyter took over to oversee its seamless transition.
The legal separation of the generation and distribution entities will be finalised within the 2022/2023 financial year.
Eskom’s performance was not all disappointing as its revenue increased to R204.3bn during the year, from R199.5bn the previous year.
This was mainly attributed to an 8.76 percent annual increase in the electricity tariff during the period, offset by a reduction of 6.7 percent in sales volume.
Eskom has so far secured R16.2bn of its R41.6bn funding requirement for the 2022 financial year.
Eskom chief financial officer, Calib Cassim, said the strengthening of the rand had a significant positive impact on results for the year.
However, Cassim said Eskom’s liquidity remained a concern due to the high cost of servicing the outstanding debt, working capital requirements, escalating municipal arrears debt, and sub-investment grade level credit ratings, among other factors.
Outstanding municipal debt rose 26 percent to R35.3bn in the period.
“This picture is likely to remain unchanged in the short- to medium-term, however, reliance on government support mitigates the material uncertainty regarding Eskom’s status as a going concern,” Cassim said.
“Cost savings alone is not a solution. Eskom’s capital position must be resolved...Cost-reflective tariffs and resolving the municipal arrears debt are required to achieve the successful implementation of Eskom’s turnaround and to ensure long-term financial sustainability. For its part, Eskom continues its concerted effort to reduce the debt and to improve gearing,” he said.
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