South Africa’s Eskom to record $1.47 billion loss in 2020/21 financial year

South Africa’s power utility – Eskom – will record a fourth consecutive full-year loss as it struggles to deal with ongoing financial and operational challenges.

The firm announced in a statement that the loss will rise to $1.47 billion in the financial year ending March compared to about $1.37 billion in previous year.

“Significant financial challenges remain, predominantly related to tariffs not being cost-reflective, coupled with an unsustainably high debt burden,” the company said. Electricity sales fell an unprecedented 10% in the first-half as lockdown measures designed to control the spread of the coronavirus pandemic dented demand.

The company reported a $5.5 million profit in the first half, a period that coincides with the South African winter, when tariffs tend to increase.

While Eskom’s financial woes run deep, the loss of revenue this year compounds the problems facing the firm that has an unrivaled monopoly on South Africa’s power sector. The government, labor unions and business groups last week endorsed a deal to find ways of reducing its $31 billion debt.

While the framework by the group is a start, “a lot more work needs to be done” on the potential solutions before an approach to debt investors will be made, Chief Executive Officer Andre de Ruyter said.

Timelines for a turnaround plan that will split the business into transmission, generation and distribution businesses have also been extended. The company now expects a legal separation of transmission by December 2021 and for the other divisions to follow the year after.

Debt securities and borrowings were reduced by $1.3 billion in the six months through September, partly because the rand strengthened against the dollar. As about 66% of its borrowings are guaranteed by the South African government, “Eskom’s level of debt is a systemic risk to the fiscus and the country as a whole,” the company said.

Eskom expects to raise funding of about $2.7 billion by the end of March. It’s considering syndicated loans and bond sales, depending on market conditions, Chief Financial Officer Calib Cassim said in a presentation.

“In order to improve our financial position in the longer term, we require a considerable reduction in the debt profile or a sizable increase in cash flows through cost-reflective tariffs,” Eskom said.

Eskom said its performance is slowly improving. Still, it’s unable to meet demand because of ill-maintained generation units that forced the utility to implement power cuts for 19 days from July through September. The company this weekend rolled out rotational blackouts for the first time since September.