Eskom and the government are on a collision course with coal miners after the embattled power producer recorded a R20.7 billion loss for the 2018/19 financial year from a R2.3bn loss in the previous year – largely due to a R14.3bn surge in the cost of primary energy and runaway municipal debt.
Announced yesterday, Eskom’s loss for the year under review is the biggest ever by a state-owned entity since PetroSA’s R14.6bn loss in the 2014/2015 financial year. The power producer’s primary energy costs, which include coal, water and liquid fuels, jumped from R85.3bn in the previous year to R99.5bn in the period under review. Municipalities also owe the utility R19.9bn, the lion’s share of it by Soweto residents.
Eskom chief financial officer Calib Cassim said the utility’s own generation costs, excluding the environmental levy, increased by 14.7 percent to R63bn driven by significantly higher utilisation of Open Cycle Gas Turbine (OCGTs) and higher coal cost per Gigawatt hours (GW/h) generated due to more expensive coal from short- and medium-term sources. “Total coal burn costs (excluding the environmental levy) increased by 8.7 percent to R58.5bn (March 2018: R53.8bn), as a result of higher coal usage and an increase of 14.1 percent in the average coal purchase cost per ton,” Cassim said.
The utility, which early this year resorted to stage 4 load shedding to avoid total grid shutdown, had to turn to diesel-burning OCGTs to keep the lights on. The power producer has over the years been slow to implement cost containment measures focused on reducing operational and primary energy costs. Minister of Public Enterprises Pravin Gordhan said yesterday that he would have to hold talks with the coal industry over the ballooning coal costs. “Coal price from the previous year to the year under review has increased by around 17 percent.
That is an extraordinary increase and I think we require a tough engagement with the Minerals Council and coal miners about whether they are serving the national interest in the right kind of way,” Gordhan said. Eskom’s headcount decreased to 46 665 at the end of the year under review from 48 628 employees in the comparative period. However, employee costs for the year amounted to R33.3bn from R29.5bn. A World Bank study in 2016 said Eskom is potentially overstaffed by 66 percent. Eskom said it planned to secure funding of R207.4bn over the next five years. The government last week gave the power utility an additional R59bn over the next two years on top of the R23bn a year over the next three years it allocated to the power producer in the February budget.
The company expects its debt service costs for the 2019/20 financial year to be R85.7bn. Gordhan yesterday also announced that former treasury official and current South African Institute of Chartered Accountants chief executive Freeman Nomvalo would be Eskom’s chief restructuring officer. “We will work with him to build this office. I am sure the task he has is to firstly interrogate Eskom’s (R441bn) debt and look at the balance sheet as a whole and look where the savings are.” Nomvalo previously worked as South Africa’s accountant-general from 2004 to 2013 before moving on to take up the role of chief executive at the State Information Technology Agency.