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JIMMY MOYAHA: Today, we received a Sens announcement from Eskom, which provided an update on its yearly performance. They reported a staggering loss of R55 billion for the previous fiscal year. However, Eskom is optimistic about returning to profitability in the coming year.
Read: Eskom forecasts its first profit since 2017
I’m joined by Eskom’s CFO, Calib Cassim, to delve deeper into these figures. Good evening, Calib. It’s a pleasure to speak with you, particularly at this time of year. Let’s start by hearing your perspective on Eskom’s performance over the past year.
CALIB CASSIM: Thank you for having me, Jimmy. Up until the end of March, we dealt with a challenging situation both operationally and financially, compounded by governance issues, culminating in a R55 billion loss.
We saw an R9 billion year-on-year improvement in the loss before tax due to an 18% tariff increase during the year.
However, due to ongoing load shedding and excess diesel costs—about R34 billion was spent on diesel this year—we were forced to make an accounting adjustment concerning the derecognition of a deferred tax asset, which added R37 billion to our tax expense, prompting the net loss of R55 billion as of March.
JIMMY MOYAHA: Calib, regarding the challenges you mentioned, there have been concerns about governance and audit-related issues. For instance, external auditors prepared a 12-page report outlining various problems in their communication to parliament, particularly highlighting a material uncertainty surrounding Eskom’s ‘going concern’ status following the R55 billion loss.
Your team anticipates a shift to profitability next year. Can you elaborate on this potential turnaround? How does one transform such a significant loss into profit, setting aside the deferred tax matter?
CALIB CASSIM: Excluding the deferred tax, we need to consider the R25 billion loss before tax against a projected profit of R10 billion. Key factors for this turnaround include eliminating load shedding and improving operational performance, which could help reduce our diesel costs from R34 billion by roughly R20 billion year-on-year as we approach March 2025.
Additionally, without load shedding, we expect a 4% year-on-year increase in sales.
For March 2024, we indicated an expected sales volume of around 13 terawatt-hours, which marks a 7% increase in sales volume. Load shedding resulted in a R22 billion revenue loss, but we believe a significant portion of this can be recuperated, especially as many customers have installed rooftop photovoltaic systems. This presents an opportunity for recovery if we can avoid load shedding.
Moreover, we’ve been engaged in prolonged discussions with SARS regarding potential rebates for our diesel expenses.
We finalized these discussions in October, allowing us to recover R9 billion, which will show up in our March 2025 income statement.
Moreover, by pursuing further cost-saving initiatives and benefiting from government debt relief converting to equity, we can lower our interest expenses, as Eskom will take on less debt going forward.
JIMMY MOYAHA: Calib, let’s look at the pressing matter concerning revenues and forecasts. As of November, municipalities owe Eskom R95.4 billion, marking a nearly 30% increase since the figures reported in March. This indicates a troubling trend of municipalities not settling their debts, which complicates the outlook for a healthy business environment. Should we expect further tariff hikes for consumers as a result?
CALIB CASSIM: This is indeed our top concern as a board and management. The minister has highlighted the unsustainability of current trends, and as of November, we were facing R95 billion in arrears.
If this continues unchecked, we could see this escalate to R110 billion by March 2025.
This situation raises two significant challenges: if not addressed at the governmental level, it undermines the benefits we gain from the R250 billion debt relief initiative. Additionally, we were unable to recognize R9 billion in potential revenue because we must acknowledge it on a cash basis. As default rates rise, we’ll accumulate more unrecoverable amounts. While we initially considered a 2% arrear percentage for our tariff application, we find ourselves closer to 5% now.
Read:
Municipal ‘Get out of debt free’ cards left standing … [Jun 2024]
Government support to municipalities for Eskom debt arrears appears to be bearing fruit [Oct 2024]
Our message remains firm: this scenario is unsustainable. Eskom cannot function as a bank for municipalities, and the minister has indicated that early in the new year, we must come together with him, his department, the National Treasury, and local government to tackle these issues.
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He has proposed various solutions, and we are committed to collaborating with the minister to rectify this situation.
JIMMY MOYAHA: Calib, regarding other unsustainable challenges facing Eskom, external auditors highlighted crucial audit issues related to the illicit creation of prepaid tokens. This raises significant concerns. Has Eskom’s recent meter recalibration initiative addressed the issue of illegal token creation, and can we regard this matter as resolved?
CALIB CASSIM: Certainly, this was one of the steps aimed at mitigating the risks associated with unauthorized tokens. We will need to keep an eye on the ongoing trend, but it is part of our broader strategy. Additionally, we plan to roll out approximately seven million smart meters over the next three years as a further mitigating measure.
Ultimately, Jimmy, we must confront collusion and corruption.
This involves tackling issues between Eskom employees and suppliers, which we need to collaborate on with law enforcement to ensure necessary legal actions are pursued. We are eager for the KRN2 rollout to help alleviate many of these concerns, but we must remain vigilant before declaring it resolved.
JIMMY MOYAHA: Addressing collusion and corruption is vital. The qualified opinion was partly founded on ‘criminal conduct,’ resulting in losses of around R6.7 billion. This is a significant challenge that directly affects Eskom’s profitability.
Considering the potential transition from a negative R25 billion to a positive R10 billion, losses due to criminal activities could add another R6 billion, along with R4 billion in irregular expenses noted in the audit. You mentioned governance issues amounting to R10 billion in total. How is Eskom managing this concern? What is the board’s strategy?
CALIB CASSIM: We have initiated two primary strategies. First, we established a project management office dedicated to high-level investigations that reports directly to the CEO, along with the audit and risk committee.
The second strategy involves consolidating our forensic investigations and security departments to obtain a comprehensive overview. We are closely working with the security cluster, which includes state intelligence and the Special Investigating Unit (SIU). We’ve seen some arrests and convictions recently, indicating a collaborative effort.
Unfortunately, the actions of a small number of individuals tarnish the reputation of our committed employees at Eskom. We must hold these bad actors accountable.
JIMMY MOYAHA: They certainly need to be held accountable, and we will continue to monitor the situation as it unfolds.
We remain hopeful that the forthcoming year will bring profitability, and I look forward to our next discussion reflecting on a successful year ahead. For now, we’ll wrap up this conversation. Thank you for your time and insights, Calib.
Calib Cassim, chief financial officer at Eskom, was with us to discuss their financial year ending March 2024.
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