Eskom confirms load shedding to stay for about two years, looks to 25% tariff hike as debt balloons to R488-billion
By Marianne Merten• 3 September 2020
Eskom is a double whammy for South Africa — rolling power outages and financial darkness. (Illustrative image | sources: Gallo Images/Jacques Stander / kisspng.com) Less With rotational power outages to stay until at least March 2022, Eskom on Wednesday told MPs electricity tariffs must increase — and how its bailout billions are used to pay off the power utility’s debt that has grown to R488-billion. Marianne Merten Follow
Rolling power outages hit Eskom’s briefing of the Standing Committee on Appropriation on Wednesday.
“A lot of members are struggling to connect because of load shedding… It is affecting oversight,” said committee chairperson Sifiso Buthelezi before the question session.
Yet, no MP asked about the rolling power outages — these cost billions to South Africa’s flailing economy pushed deeper into recession by the Covid-19 hard lockdown — even after Eskom said outages would definitely continue until December 2020, resume in January 2021, definitely to March, and kick in again from June 2021.
Central to this is a persistent 11,000 megawatt (MW) supply shortfall, over and above planned power plant maintenance shutdowns.
Schedule Stage 3 power outages “will be required every month until March 2022”, according to Eskom’s briefing document for MPs, if the shortfall hits 13,000MW.
“It is important to recognise that due to the current unreliability and unpredictability of the system, the risk for load shedding remains. This will be the reality until after the 18 months of reliability maintenance (Eskom’s emphasis),” the power utility’s presentation reminded MPs twice over six pages of mostly diagrams.
Finish and *klaar*.
The impact of breaching that 11,000MW unplanned supply shortfall was illustrated on Wednesday, just hours after the parliamentary committee briefing. Eskom ratcheted up to Stage 4 rotational power outages due to an unplanned power shortage of 11,300MW after “multiple unit breakdowns as well as the additional demand caused by the cold weather”, the power utility said in a statement.
Eskom is a double whammy for South Africa — rolling power outages and financial darkness.
The power utility is R488-billion in debt as at 31 March 2020, in a continuation of what has led Eskom to be described as the biggest risk to the economy and public finances.
Arising from the 2019 Special Appropriation Act, Eskom received R49-billion additional support for the 2019/20 financial year, and R59-billion for the 2020/21 financial year ending on 31 March 2021.
On Wednesday Eskom CFO Calib Cassim outlined how this R49-billion from the government — effectively taxpayers — alongside the R36.2-billion operational cash surplus was used to cover R70.6-billion debt repayments.
“We need to use the government support to service our debt,” he said.
Or as the briefing document put it:
“In the year ending 31 March 2020, Eskom paid R31.5-billion towards principal and R39.1-billion towards servicing interest. The bulk of these payments were made using the R49-billion received from government. It should be noted that Eskom generated a positive operating cashflow of R36.2-billion for the year.
“As at 31 March 2020, gross debt was R488-billion, an increase from the R440-billion from March 2019.”
Ditto, for the 2020/21 financial year that ends on 31 March 2021 when Eskom says it must additionally find savings of R14-billion:
“It is evident that without government’s recapitalisation, Eskom would not have been in position to meet its obligations as they fell due. The R56-billion appropriated for the 2020/21 financial year will be used to assist in servicing the estimated R95-billion interest and capital repayments falling due in the 2020/21 financial year.”
Cassim told MPs an electricity tariff increase of 25% in real terms was needed, even if he acknowledged “it can’t go up once off due to the impact on the economy”. A 10% tariff increase in 2022 would generate R23-billion, he added.
It was a reference to the additional R23-billion a year over the next 10 years announced in the 2019 Budget — before the Special Adjustment Act provided Eskom with a further R26-billion for the 2019/20 financial year and R33-billion for the 2020/21 financial year.
Eskom’s push for higher tariffs comes as its own numbers show a five-fold hike between 2008 and 2018/19 to 90 cents per unit. But that’s before municipalities, which rely on electricity sales to generate revenue, put in their mark-up.
Eskom’s own numbers have correlated increasing tariffs with a drop-off in electricity sales. Anecdotally, more people are going off the grid in a reflection of sharp and deepening socio-economic inequalities: while middle classes invest in solar and gas, the poor and working-class increasingly turn to candles and paraffin.
Wednesday’s Eskom briefing to MPs held an undertone that showed no love lost between the power utility and regulator, the National Energy Regulator of South Africa (Nersa).
The two are locked in court battles over the determination of electricity tariffs, and how much the power utility may recover through the regulatory clearing account (RCA). When Nersa dismissed the government bailout in its tariff calculations, Eskom went to court. The power utility won, but Nersa said earlier in August 2020 that it was appealing.
On Wednesday, Eskom told MPs how much more money it could have had were it not for Nersa — R350-billion since 2014, or almost all its debt. The regulator’s tariff determination “does not allow Eskom the opportunity to generate enough cash…” said Eskom’s CFO.
According to the briefing presentation to MPs, the “economy is better served by increasing tariffs” as the document adds, the “IRP (Integrated Resources Plan) refers to competitive electricity price at least 25% more than Eskom’s price”.
It’s now 18 months since the first move to pull Eskom out of the deep hole of State Capture ensnarement, breakdown-prone power plants and overall dire financial straits.
It was meant to be a clear, deadline-driven project for the power utility’s financial health. The February 2019 Budget set the scene with additional allocations — and details buried in Annex W on the unbundling into transmission, generation and distribution entities under the umbrella of an Eskom Holdings entity.
The policy document, “Roadmap for Eskom in a reformed electricity supply industry”, took another eight months to emerge just before the October Medium-Term Budget Policy Statement (MTBPS).
In a flexible approach, the roadmap announced the clustering of power stations and a set of deadline proposals for the functional and legal separation of Eskom’s three entities.
By June 2020 it was clear the deadlines had been extended, leading to the bizarre situation of Eskom adjusting the official roadmap policy deadlines to suit itself as the roadmap timelines were seen as “aggressive”.
On Wednesday it emerged that Eskom had failed to disestablish its Finance Company by end March 2020 in a breach of conditions linked to financial support. The non-core asset — it provides housing subsidies averaging R3,500 a month to employees — now has a new deadline of being disestablished by 31 March 2021.
From rotational power outages to its balance sheet — Eskom’s outlook is dismal. DM