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Eskom's losses still escalating, but it can be turned around. Here's how.

May 15 2019 07:30
Melanie Gosling, Fin24

Eskom’s revenue has gone up 500% in the last ten years but the utility was technically insolvent and would post a record loss of at least R25bn, Professor Anton Eberhard of UCT’s Graduate School of Business said on Tuesday.

“Eskom survives by borrowing,” Eberhard told delegates at the African Utility Week. Eberhard, appointed by President Cyril Ramaphosa to head a task team to examine Eskom’s problems and its sustainability, said the utility was selling less electricity than it had ten years ago, but its coal costs had gone up five times.

Losses Escalating

Its salary bill had increased as staff numbers had swelled from 32 000 to 48 000 in 10 years. Unpaid municipal debt was a “massive problem”.

Soweto’s accumulated debt to Eskom was R17bn, while other municipalities together owned another R17bn. “And let’s not underestimate state capture, its impact on skills and capabilities. We’ve seen in the task team how deeply it had run into Eskom, and its consequences were many people left,” Eberhard said. 

Even with the tariff increases, the government bailout, and Eskom’s aggressive cost-cutting, Eskom’s losses were still escalating. “The core story is the current measures are not enough to get Eskom on a stable path. We still need to do more.” 

'Climate Money'

The situation was grave, but could be turned around. One possibility that the task team was exploring was to get the cost of Eskom’s debt reduced with a blended finance facility. 

Eberhard said South Africa was one of the most carbon intensive economies in the world. This presented the country with an opportunity: if it closed some of the old, dirty, expensive coal power stations and so reduced its emissions, it could get “climate money” in return.

This could be blended with development finance, and was a possibility to return Eskom to profitability. But what would really make a huge difference was the unbundling of Eskom. 

Restructuring

“Eskom is a structure for last century. There are 106 countries around the world that have unbundled their power sectors,” he said. The first step would be to get the transmission and the systems operator out of the utility.  

“Eskom needs key interventions around finances. Now is the time to link it to restructuring. Eskom ultimately is going to change its business model.” 

Focus on wind, solar

Eberhard said all the studies on the country’s electricity situation - by UCT, the CSIR and the Department of Energy – had made similar findings: close the old power stations and increase solar and wind power, complemented by a flexible resource such as gas or utility-scale battery storage. He said the government should have launched a new round of independent power producers years ago. Wind and solar were by far the cheapest electricity option.

If there were another round of today, the price of renewables would be less than 50c a kilowatt-hour. Eberhard said the contribution of wind and solar power in South Africa, although it accounted for only 5% of Eskom’s sales, had made a big contribution to mitigating load shedding earlier this year. 

“If we had not had renewable energy, we would have had Stage 5 or Stage 6 load-shedding.” 

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