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Eskom 'technically insolvent', won't last beyond April 2019 - committee hears

Feb 13 2019 10:51
Lameez Omarjee

Eskom is "technically insolvent" and will cease to exist at the current trajectory by April 2019, the portfolio committee on public enterprises heard.

The department of public enterprises (DPE) briefed members of the portfolio committee on public enterprises on Wednesday, where the issues at Eskom were highlighted.

Eskom's R420bn debt burden represents 15% of the sovereign's debt. If Eskom defaults on its debt, it will threaten the economy, the DPE highlighted in a submission to the committee.

Eskom got to this point due to a number of factors, the DPE said.

Over the past 10 years, coal purchase volumes remained flat, and capacity only grew slightly. Additionally employee costs increased significantly due to the associated employee benefits, the report read.

Even though Eskom's revenue grew more than four times since 2007, due to tariff increases – the expenses of primary energy and employees grew faster than revenue growth. The presentation showed that employees grew from 32 000 in 2007 to 48 000 by 2018. The associated costs grew from R9.5bn to R29.5bn.

Further, its opertaing profit has not been enough to cover interest costs, and support capital expenditure. 

Growing municipal debt has also contributed to Eskom's woes. 

Eskom also has the challenge of maintaining its operational sustainability. The average age of its generation fleet is 37 years but essential mid-life refurbishments have not been implemented. There has also been "poor quality" of maintenance, due to "poor workmanship".

"Forty percent of plant breakdowns are due to human error," the minister said.

The ongoing coal shortages are due to "poor management" and lack of investments in cost plus mines.

There has also been a significant loss of critical skills and low staff morale, the DPE highlighted.

Build programme

Cost overruns and poor performance from the build programme have also added to Eskom's burden.

"Medupi and Kusile have suffered massive delays and cost overruns due to poor planning, poor engineering designs, poor procurement practices and poor contracting and corruption," the report read.

Costs of the plants have escalated significantly to over R300bn. Medupi's costs rose from R24.9bn to R145bn and Kusile's costs doubled from R80.7bn to R161.4bn.

In terms of Eskom's governance – "systemic corruption, malfeasance, fraud and state capture project" compromised the credibility of the organisation and eroded investor confidence.

The effects of corruption have been passed through to consumers and the shareholder (government).

"The ongoing revelations continue to threaten the credibility of the institution," the report read.

READ: Eskom: Everything you need to know about load shedding as SA enters 'uncharted territory'

Eskom introduced stage 2 load shedding for the first time since December on Sunday. The power utility attributed it to plant breakdowns. By Monday, Eskom shifted load shedding to stage 4, after losing six generating units and continued to implement stage 3 load shedding on Tuesday.

The power utility will on Wednesday implement stage 3 load shedding from 08:00 to 23:00, Fin24 reported.

During the State of the Nation Address debate in Parliament on Tuesday, Gordhan said he met with Eskom's board on Monday to get a better understanding of the cause of the load shedding at the power utility. 

He told MPs that not all of Eskom's installed capacity is available, and said Medupi and Kusile power stations were "badly designed and badly constructed' and "not performing at optimum levels". He also assured that the unbundling did not mean that there would be privatisation.

Last week in the state of the nation address, Ramaphosa announced Eskom would be split into three entities - generation, transmission and distribution - which would fall under the company Eskom Holdings.

Additionally government would support Eskom's balance sheet, the details of which will be revealed in the National Budget, to be delivered by Finance Minister Tito Mboweni on February 20.

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