Auditor warns utility may not be able to continue operating
Nation has seen a record 197 days of power cuts this year
South Africa’s debt-ridden state power utility posted a fifth straight loss and warned the gap may widen, while its auditor said that it may not be able to continue as a going concern.
Eskom Holdings SOC Ltd.’s loss narrowed to 12.3 billion rand ($720 million) in the year through March, from a restated 25 billion rand a year earlier, outgoing Chief Executive Officer Andre De Ruyter said at an online results briefing on Friday. Debt owed by the utility, which supplies more than 90% of the nation’s electricity, fell 1% to 396.3 billion rand by the end of March, he said.
A loss of 20.1 billion rand is anticipated for the current fiscal year, according to De Ruyter. The government has pledged to take over part of Eskom’s debt and said it won’t allow it to fail.
“Without government support, Eskom will not be able to meet all its debt-service commitments,” Calib Cassim, Eskom’s chief financial officer, said at the results presentation. The utility repaid loans of 38.9 billion rand during the financial year, while raising 33 billion rand, he said.
The yield on Eskom’s 2028 eurobonds, which don’t carry a government guarantee, rose four basis points to 11.43% by 2:46 p.m. in Johannesburg. The yield on benchmark South African government 10-year rand bonds was little changed at 11.78%.
Eskom has instituted power cuts, known locally as loadshedding, for a record 197 days this year to protect the national grid as it struggles to curb frequent breakdowns at its old and poorly maintained coal-fired plants. The utility doesn’t generate enough revenue to cover its operating costs and interest bill, leaving it dependent on state bailouts to survive.
Deloitte & Touche, Eskom’s auditor, expressed concern that the company may not be able to continue operating and said it had identified irregular expenditure, fruitless and wasteful costs and losses due to criminal conduct.
The auditor’s report found evidence of failure by the utility to take action to correct breaches of the National Environment Management Act or comply with the Public Finance Management Act, Eskom said in a stock-exchange filing. It also picked up other irregularities, including the purposeful destruction of tender documents in a fire, the possible recreation or falsification of documents and a failure to investigate and report financial misconduct and irregularities.
There is “a material uncertainty relating to Eskom’s ability to continue as a going concern,” Deloitte found, according to the filing.
Eskom is also confronting a leadership vacuum. De Ruyter, who’s served as CEO for almost three years, plans to leave at the end of March, Chief Operating Officer Jan Oberholzer is set to retire in April and several other top management positions are vacant.
The energy crunch has hamstrung growth and deterred investment in Africa’s most industrialized economy. The power supply outlook for next year will be very constrained, and blackouts will continue until an additional 4000 megawatts to 6,000 megawatts of generating capacity is added to the grid, De Ruyter said.
In October, the government said it would take over one third to two thirds of Eskom’s debt to help it become financially sustainable, with details to be announced in the February budget.
The release of the utility’s latest financial results were postponed by several months, due to a delay in appointing a new external auditor.
- Eskom’s generation unit lost 28.6 billion rand during the financial year, while its other two units made profits.
- The transmission unit will become a separate entity later than planned.
- Earnings before interest, tax, depreciation and amortization rose 62% to 52.4 billion rand as revenue increased.
- The company paid 32.5 billion in interest, which eroded profitability.
- The arrears owed by municipalities to the utility rose to 44.8 billion rand from 35.3 billion rand the year before.
- The utility had 40,421 employees at the end of March, down from 42,799 a year earlier, with the reduction mainly attributed to attrition and staff taking voluntary severance packages.
— With assistance by John Viljoen