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Eskom needs a bailout

Heading for a full-year loss of R15bn.
Eskom chair Jabu Mabuza at the presentation of the utility's interim results on Wednesday. Picture: Moneyweb

Eskom is buckling under its debt burden of R419 billion and seems to be angling for another government bailout.

This became clear at the presentation of its interim results for the six months ended September 30 at its Megawatt Park headquarters in Sandton on Wednesday.

The debt could increase to R600 billion in the next three years. Eskom has already used R337 billion of its R350 billion government guarantee and might ask for further guarantees.

The utility reported an 89% drop in net profit – from R6.3 billion at the end of September 2017 to R671 million just one year later. Newly appointed Eskom CFO Calib Cassim told reporters that the full-year loss could be as much as R15 billion, up from the R11.2 billion budgeted for at the beginning of the financial year.

‘Expect load shedding’

These results come against the backdrop of deteriorating operational performance. Eskom COO Jan Oberholzer said at the event “load shedding is a reality going forward”. 

In the reporting period, Eskom generated R26.6 billion from operating activities, which is R18.5 billion short of the R45.2 billion it needed to service its debt. This after its debt servicing costs almost doubled from R23.2 billion at end of September last year.

Staff costs and primary energy costs each rose by 12% while arrear debts from municipalities have increased by 25% to R17 billion.

Sales volumes dropped by 0.8% which caused revenue to increase by only 2.7% despite a 5% tariff increase.

Eskom chair Jabu Mabuza made it clear that “Eskom is not sustainable as conceived and seen today.”

Permanent loss situation

He said Eskom is locked into a permanent loss situation and revenue is structurally limited. Expenses have ballooned due to inefficiencies, and electricity tariffs are not cost-reflective.

The problem is that customers cannot afford cost-reflective tariffs, he said.

He added that without significant changes, funding costs will increase further and the utility might not be able to continue as a going concern.

Eskom is not selling enough electricity and isn’t collecting the revenue for the electricity it did manage to sell, Mabuza said. It is spending increasingly more just to make the payments on the money it has borrowed.

The board has prepared an “ambitious” turnaround plan and is currently engaging government on it. It has met with public enterprises minister Pravin Gordhan and has briefed President Cyril Ramaphosa. It is still to meet with the ministers of energy and finance and will also engage with the labour unions, Mabuza said.

‘It will take pain’

He emphasised that Eskom’s problems cannot be solved by Eskom alone, saying that the utility will have to “work with the government to reduce Eskom’s debt and debt service cost”.

“It will take pain,” he said. “The question is what kind of pain.”

Asked whether the conversion of debt to equity is an option, Mabuza said the Eskom board initially thought that might work, but realised that its biggest creditor – the Public Investment Corporation (PIC) – will need a return on equity for government pensioners.

“It cannot invest in a loss-making entity,” he said; if the PIC won’t invest, why would other funders?

“There are other ways, like a bailout or equity injection,” he added.

Unattractive to investors

Mabuza further stated that there is “little that can be sold” in terms of assets and that all power stations other than Medupi and Kusile operate at an average Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin of 21%, which would not be attractive to investors.

Medupi and Kusile operate at an Ebitda of about 60% and are sellable, but Eskom needs them to produce electricity. In addition, Eskom is paying more than double the amount it should be for the construction of these two power stations, so this idea is a “non-starter”, said Mabuza.

The sale of Eskom Finance Company has been on the cards for a long time, but that won’t make a material difference to Eskom’s position, he said.

Eskom’s problem is the size of its debt and its serviceability, said Mabuza, adding that “if we can get some relief on the load” the serviceability would become less of a problem.

Someone has to pay …

He emphasised that “someone” has to pay the debt: “Either the consumer or the taxpayer has to pay. And it might be the same person!”

Asked the minimum amount by which Eskom’s debt burden needs to be reduced, Eskom CEO Phakamani Hadebe said it will depend on the tariff determination currently before energy regulator Nersa. Eskom has asked for a 15% tariff increase every year for the next three years.

Nersa will hold public hearings about the application in January and announce its decision on March 1 next year.

* At the same event, Eskom announced that Calib Cassim, who has been acting as CFO for the last 14 months, has been appointed to the position permanently.

Listen: Eskom woes deepen despite turnaround plan

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Phakamani Hadebe, we will just reduce our usage more and more (and many people will move to solar and gas) if you get those 3 x 15% increases.

What you need to do, Phakamani Hadebe, is retrench all unnecessary staff.

They have twice the staff needed, so 20000 at R700k a year, ( average salary) is R14 billion a year to start with. Get going, you have done nothing to date…..oh wait I forgot it is elections coming up so lets switch the lights off instead and then no one will know who they are voting for.

They really do not know what they are doing, like SAA reduce the income generation but keep the overheads.

Too may excessively-paid chiefs and “performance bonuses”…?

Eskom is going to face the same reality as Cape Town Water did when they needed to introduce a fee for water. Because people needed to reduce their consumption Cape Town Water did not collect enough revenue on the consumption based model. Can I also just point out that this would be less of an issue if municipalities actually paid money over to Eskom.

No guessing needed to whose going to bail them out as in Cape Town water crises…you and me. Eksdom have already requested NERSA for a 30% increase.

Please give Eskom a permanent bail out?

retrench half of the staff and no more bonuses!

How about ESKOM implements “Load Shedding” within their own ranks by reducing top heavy management structures and cutting the number of staff members. Then implement Stage 2 Load Shedding by no longer awarding themselves “performance bonuses” and suspending salary increases. Then implement Stage 3 Load Shedding by getting those municipalities that do not pay to actually pay. Introduce Stage 4 Load Shedding by cutting off those consumers who do not pay. As they say, there will be pain, so let us all bear and carry this pain.

South Africa can say good bye to any energy intensive industries.

The ANC is just starting to learn about the eighth wonder of the world, namely compounding.

The situation at Eskom forces the ANC to acknowledge the costs of the BEE project. BEE companies are rewarded inflated tenders from the state. The entire BEE project is nothing but the looting of the common assets of all citizens. When the system allows the looting of common assets, like with the sharing of property in communal lands, there is an incentive for the unscrupulous to plunder at an accelerated pace. Communal ownership of assets enables the scum of society to exploit the resources at a maximal-, not optimal, rate . The benefits of the exploitation is borne by the looting individual, while the cost of the exploitation is carried by the whole community.

In a SOE, the loot is shared among the few, while the cost is distributed among all taxpayers. A system of common ownership of shared assets is only viable under very strict rules that are ruthlessly enforced. Take the military for instance, common assets (property, housing, weapons, vehicles, people) are employed by many individuals. Regular inspections, strict discipline and heavy punishment prohibits the abuse of military assets.

Under the ANC government the cadres have turned the economy into a feeding frenzy. Everybody is trying to steal and plunder at the maximum rate. When assets belong to everybody(SOE or communal land), they actually belong to nobody. This is exactly how the stealing cadres see it. They are not stealing from anybody because it belongs to nobody.

When the common assets at the SOE are entirely depleted, they turn to the next level of common property – the Treasury. They will inevitably plunder the Treasury. When the Treasury runs empty the cadres will turn to the next level of common property, the value of the currency. They will plunder the value of the currency like they did in Zimbabwe and Venezuela. This is exactly what will happen as long as the assets of the country belongs to everybody. There can be only 2 alternatives. Either the assets have to belong to particular individuals who will take responsibility for the optimum utilization and the protection of those assets (privatization), or the common property has to be guarded with military precision, with military rules and military punishment.

The combination of the freedom charter(that motivates plunder), and the failed state (that enables plunder), guarantees the total destruction of all common assets.

NHI is the next government Ponzi scheme.

Sensei you are describing the classic and age old “Tragedy of the commons” problem. The only solution to it is private property. The ANC will only learn the hard way.

Bailout, a commonly accepted term in SA SOE’s which is typically used when management run to the government to solicit more tax payers money when “we are unable to do the jobs we have been provided with, despite the over sized remuneration packages we get, and despite the billions we have already received”

Eskom states that they are in a permanent loss making position, but is requesting bailouts and more guarantees. What do they think will happen to that money? Answer, it will also be misappropriated

How about you start to fire those ghost, useless, duplicate staff…I mean retrench them with huge settlement packages… and start to collect the money from municipalities and “parts of our country” where people think they have a right to free energy? How about trimming overheads and your KFC bills?

Maybe they should do that before asking for more and more and more

….. oh yes, I forgot, load shedding….

Load shedding, a commonly used term in Eskom, where they manually turn off power to suburbs to give the impression t tax payers and paying energy users that they are unable to operate without a tariff increase or government guarantee….

Load shedding/black outs/ black mailing call it what you may.

The absolute brilliance of it is the fact that those that PAY get switched off, not those that steal. WHY? Because those that pay need to be blackmailed into paying more.

And isn’t Eishkom supposed to be the flagship of Radical Economic Transformation (EWC)…?

The harsh reality is ….. they do not care about load shedding ….. they do not care if there is no electricity ….. they do not care if Eskom closes down ….. it is irrelevant. They are incapable of the complexity of joining the dots and understanding that they are on the road to self destruction and death by starvation. The people making decisions in South Africa believe “I will be fine,l have enough money to buy what I need.”

We are creating a playing field for the EFF to thrive and grow …. we like all other African countries will have our dictator and we will have our genocide ….. and no this genocide will not be whites on blacks it will be anyone who speaks out against the dictator. When we look back in 100 years time it will be clear how the policies of appeasement adopted by an incompetent government caused this.

The day Eskom budgeted R12 billion for Medupi and stage 1 of the project came in at R65 billion, Eskom was doomed. So NO eskom I will save my money, I will buy solar and I will go off grid. Eskom your management plundered, stole, misappropriated the money.

Eskom is the only sales and services organisation in the world that rewards their clients for buying less of their product ….. are you so stupid you cannot see this. Perhaps if just one person running that mess had more than a standard 1 education……. the current management is too scared to say what the real problem is. Too scared politically to retrench the extra 20 000 non productive so called staff, too scared to negotiate a decent contract with the best provider….

ANC here is a wake up call for you. NO ONE is coming to help you. There will be NO IMF bailouts …. you have NOTHING absolutely NOTHING the worlds wants or needs. Best you run cap in hand to China, they will play you like a puppet and spit you out once your resources are plundered.

In a normal business operation any company which tries to recover its costs through increased tariffs due to it mismanaging its assets or saleable products and has borrowed extensively and overpaid for its raw materials is doomed to failure. Humans are quite resourceful when a commodity exceeds its intrinsic value and is seen as expensive they will find alternate substitutes – all SoE’s fall into this trap and will ultimately fail or at least have to re -engineer their offering. E – Tolls is a typical example of largesse trying to trump rational thinking and costing

I still remember Nelson Mandela saying: “I understand white people’s fears”. I know now what he actually meant.

I think he was speaking on behalf of the ANC and meant to say “We don’t understand what we don’t understand…”

Someone has to pay …

He emphasised that “someone” has to pay the debt: “Either the consumer or the taxpayer has to pay. And it might be the same person!”

VIVA ANC VIVA….. What a sham these SOE’s are. The boards and the CEO’s should all be locked up for one year in Robben Island and be schooled on Public Administration and Governance.

A classic case of failed BEE. Import a top US manager to run the place properly-get the best possible person and give them full freedom to fire whoever needs to be fired of which there are many!

A rights issue in a normal listed entity would fail here as there is absolutely no compelling investment case. Debt is simply too high and too expensive. Now if we were not a banana republic run by a criminal clique the entire procurement process could be reengineered and the costs could drop possibly by 25%.

Thank you ANC gangsters!

Just heard from a friend at works as ESKOM . All staff got 13th Cheques this year . I thought that only happened if the employer made a profit !!! Sorry I must have done a different Eco’s course …….

The silly hat, at a formal presentation. What is wrong with these people!?

Lack of morals and ethics. Wrong value system and culturally not fitting.

The headline should really read “ANC Phuques South Africa”
It phuqued us with Eskom
It phuqued us with SAA
It phuqued us with the post office
It phuqued us with VBS
It phuqued us with cadre deployment.
We are phuqued and it is entirely the ANC’s fault.

Eskom should start by scrapping the indirect sales model and sell direct to households. Eskom is a national essential asset – local council budgets are not. Eskom is losing margin to significantly underperforming sales channels, many of whom have proven completely incapable of managing the collections process.

They do that in some smaller towns, then the electricity is less expensive, and ESKOM actually receives money for their electricity, you pay and get, and if you don’t pay you don’t get, it does not matter who you vote for. You are 100% right, municipalities are middlemen, and this reduces efficiency and creates another path for financial abuse and mismanaged social engineering.

Mabuza telling it like it is. Eskom is unsustainable, therefore forcing governments hand to restructure or load shed. Load shedding not feasible, therefore force the restructure.

Can you guys please show some respect and remove your hats inside?

Joburg’s DA mayor Mashaba is working on this. He installs smart meters that instantly shows higher consumption; In my case a 300% increase. E-mails bounce and ‘phone calls unanswered. Thoroughly third world now.

Let them switch off the power rather.

The ANC and its BEE codes compromise investement in SA, are unsustainable, are value intercept and not value add and are there to enrich a few at the cost of the many and help foster further corruption by ANC cadres.

It has to go.

Very simple solution. Increase the tariff by, say 25% per year over next ten years. Then, when no one buys electricity ever again, simply go out of business.
Then all the “consumers” who don’t pay for electricity will toyi-toyi and burn the place down. Hence no need for liquidation sale as there will be nothing to sell.

And there I was, thinking that everything was fine with Eskom as Gordhan allowed above inflation increases for all employees as well as a once off bonus. Doesn’t this only happen at companies making good profits ? The level of ineptitude is disgusting ! I refuse to spend my life paying for others theft, greed and sheer stupidity. Plan B fast approaching.

If only the poor people of this country knew how money that should be going to them is being used to bail-out the mismanaged SOEs, so brilliantly run by the ANC elite!

If only they knew anything!! Poor buggers, can’t see a thing due to the hunger pains, their only focus is where to get a few morsels for the next meal! A tragic scenario, and it’s going to be an unhappy ending thanks to those who promised to be the saviours from Apartheid!!

CR,Sir, you are flogging a dead horse with a fly swatter Mate! Can you not see this!? Can you not put your hand up, acknowledge ANC failure, and ask the Captains of Industry, Academics, reputable Management consultants, for help to run this circus. Because it should be very evident to you that the clowns you have in place are and have always been completely incapable, this besides their moral and ethical downfalls!! Have you ever heard of “tipping point”, suggest you find out about the term immediately!!

Show us some of the above so that we may show you some respect or give it up!

“..debt burden of R419 billion.” / “..debt burden of R419 billion.” / “..debt burden of R419 billion.” / “..debt burden of R419 billion.” / “..debt burden of R419 billion.” / “..debt burden of R419 billion.” / “..debt burden of R419 billion.”

Just in case the hopeless reality of the situation created by the corrupt, inept incompetents in this circus has escaped readers.

I am suprised to learn that a recently graduated engineer earns double the amount at Eskom than in the private sector. Same for other gov institutions like transnet etc.

So Eskom should either cut staff renumeration in half or cut staff count in half.

At least the chairman wears a dunce cap.

Make all customers direct and use pre-paid, maybe throw in a fully functioning app to do it, and voila, no more debt issues…

Eskom has no coal, we have lots of sunshine.

End of comments.





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