Lockdown to burn a hole in Eskom finances

Eskom expects to bleed up to R2.5 billion a month in revenue because of reduced demand in electricity by intensive users, and it’s possible that the decline may continue after the lockdown period ends.

The struggling power producer, whose generation capacity has come under severe pressure in recent years, has emerged as one of the many casualties of the Covid-19 lockdown. 

“Given that the lockdown will be in place for a month, Eskom expects revenue losses in the region of R2 billion to R2.5 billion a month,” said Eskom’s Acting Treasurer Mandla Maleka.

The five-week lockdown, which began on March 26, is expected to be lifted at the of April. Thereafter the economy is expected to be opened in stages. 

Eskom is anticipating a possible decline in economic activity post the lockdown period, which may “result in lower payment levels for electricity”.

A full picture of the financial gap won’t be reflected in the annual financial statements for the period ended March 2020, as only five days of lockdown were recorded in the months. However, the impact of the entire month of April would register in the interim results for six months to September 2020 and in the full year ending in March 2021.

“The company will look into its cost structures and investigate programmes that may help reduce costs and offset the revenue losses,” said Maleka.

Every penny counts

When it comes to Eskom, every drop of income counts, as the state-owned entity has for years been battling severe financial problems. In September, the power utility reported a net loss after tax of R20.7bn for the 2018/19 financial year, with outstanding municipal debt rising to some R20bn.

The company’s total debt at the time was around R450bn.

Eskom’s precarious liquidity challenges and a mountain of government backed loans had over the years been flagged by international lenders and ratings agencies as one of the key threats to SA’s public finances.

Maleka added that Eskom at this point “does not have any plans to approach the government for further financial assistance” – adding that government had committed to the previously announced financial assistance package for the company.

He said the company will look into other internal avenues to offset any revenue losses and that its would “still be in a position to meet all its financial obligations” as required.

Eskom was in the 2019 Budget allocated a R69bn financial support package over the next three years,  with Finance Minister Tito Mboweni insisting the cash injection does not mean government is taking on its debt.

Maintenance dilemma

According to Economist Sifiso Skenjana, the expected revenue loss is a small price to pay for Eskom compared to the cost of running diesel generators each time there is a maintenance related breakdown on the plant.

He said the positive outcome of this scenario is that the lockdown period has allowed Eskom space to accelerate its maintenance programme without taking units off line, which constrains capacity and leads to loadshedding.”The low demand has allowed them to accelerate their maintenance programme without effecting loadshedding and resorting to burning diesel, which adds another cost.”

“There isn’t any easy way of looking at the situation,” he added.

Maintenance of the company’s fleet of aging coal-fired power station had for years taken a back seat, while the construction of its two mega power station, Medupi and Kusile had ran into enormous overruns, amid concerns of design flaws which have been partly blamed for systems breakdowns.

The company which produces most of the electricity used in the country had earlier said that the plunge in electricity demand due to the mandatory closure of mines and factories has allowed Eskom to boost maintenance to 9 500 megawatts of capacity from 4 000 megawatts. 

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