JOHANNESBURG - Eskom chairman Jabu Mabuza confirmed on Wednesday that the power utility was in a state of severe financial difficulty, and admitted that Eskom, as it is conceived and operating, was not sustainable.
"We are locked into a permanent loss-making position in that our revenue growth is structurally constrained, our operating expenditure has ballooned due to internal inefficiencies and the debt load is impossibly high," Mabuza said.
"The company's operational and financial performance rapidly deteriorated in the first half of this financial year. In the last six months alone we saw significant EBITDA [earnings before interest, tax, depreciation and amortization] margin compression coupled with a further drop in our plant performance."
This as Eskom reported that its revenue marginally increased by three percent to R98.1 billion for the period ended September 30, up from R95.5 billion in the same period last year, but net profit plunged 89 percent percent to R671 million, down from R6.3 billion last year.
Eskom said its financial ratios had deteriorated, and were expected to worsen in the next six months. The power utility said its turnaround would not happen overnight as its financial situation is only expected to improve by 2023.
The state-owned company said it was in a debt reliant liquidity situation that had resulted from low tariffs, a decline of 0.8 percent in sales volumes year-to-date, primary energy and employee benefit costs increasing, and a continuing build programme.
"Put differently, we are not selling enough electricity and not at prices that recover our costs throughout the value chain. We are not collecting all that we have sold. But against this, we are spending more and having to borrow more at higher costs to repay what we previously borrowed and cannot afford to repay from our declining profits," Mabuza said.
"This is indeed an extremely perilous position which is a function our own internal inefficiencies and exacerbated by external factors. We therefore need to take bold steps as of today to save Eskom and return it to financial sustainability."
Mabuza said without significant changes, Eskom ran the risk of less committed funding sources which would further increase its funding costs and potentially create going concern challenges in the medium term.