14/08/2018 – News / Energy / Power / Electricity / Utilities / Eskom / South Africa / Frost Sullivan
Opinion: Is there light at the end of the tunnel for Eskom?
The release of Eskom’s 2017/2018 financial results reveals the extent of distress within Africa’s largest utility. Energy analysts at Frost & Sullivan believe that much effort and hard decisions lie ahead for the power giant’s top brass.
The release of Eskom’s 2017/2018 financial results revealed a net loss of R2.3 billion and irregular expenditure of R19.6 billion since 2012, exposing the extent of its financial distress. The results also revealed liquidity shortfalls and other operational challenges that will require attention if the fortunes of Africa’s largest utility are to be turned around. This is according to Lehlohonolo Mokenela, Energy and Environment Industry Analyst at Frost & Sullivan, who believes that much hard work and difficult decisions lie ahead for Eskom’s management team.
Such hard decisions have included not paying employees bonuses as one of the austerity measures taken by the firm for the coming year.
“Other key cost groups such as primary energy will need to be the main focus if Eskom is to maintain its Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) growth of 26 per cent. Energy sales growth remained flat over the past 12 months, largely due to the sluggish performance of the economy,” noted Mr Mokonela.
“The fact that Eskom went from a profit of R888m in 2016/2017 to a R2.3bn in 2017/2018 is attributed to finance costs, which increased by over R6 billion for the year,” he continued. “The financial concerns brought to light in the 2017/2018 financial results included the decline in net cash from operations from R45.8bn to R37.6bn this year, as well as the R13.6bn owed by a number of municipalities.”
Completing Medupi and Kusile
Of concern for the medium- to long-term is completing Eskom’s two major ongoing coal-fired power project developments – the 4,764 MW Medupi power station near Lephalale in Limpopo province; and the 4,800MW Kusile power plant near Witbank in Mpumalanga – in line with the expected future energy needs.
Eskom has met with labour unions and has offered two proposals of increases above seven per cent between the current year and 2020. “The financial results speak for themselves,” remarked Frost & Sullivan in a report, “and if Eskom is to improve financially going forward, strict financial budgets need to be implemented to ensure improvement in the long term.
Focus on smart energy technologies
“The strategy review – expected to be completed by September 2018 – will hopefully see increasing use of smart energy technologies with a larger emphasis on implementing smart grid technology,” said Laura Caetano, Energy and Environment Research Analyst at Frost & Sullivan. “This would be in line with the mandate given by the Southern African Power Pool to all its member utilities to adopt digital solutions in order to better facilitate cross-border electricity flows in future.”
According to Eskom Spokesperson Jabu Mabuza, IPPs are cost-neutral to Eskom and pose no financial risk to the utility, which acts as a middleman. “This might be the case in the short term – however, when Medupi and Kusile come online, the system will be in overcapacity and might result in stranded assets for Eskom,” concluded Ms Caetano.