Eskom can turn the corner, despite challenges Eskom can turn the corner, despite challenges
While Eskom faces many challenges, newly appointed Eskom interim Group Chief Executive (GCE) Phakamani Hadebe is confident that the power utility can turn the... Eskom can turn the corner, despite challenges

While Eskom faces many challenges, newly appointed Eskom interim Group Chief Executive (GCE) Phakamani Hadebe is confident that the power utility can turn the corner.

“I am confident that Eskom can turn the corner. The challenges at Eskom are less about core operational issues,” said Hadebe.

Briefing reporters at the interim results announcement on Tuesday, the interim group chief executive said while challenges including a qualified audit report, the utility can still find its way.

The 2.2% tariff increase granted [in February 2017] to the utility by the National Energy Regulator of South Africa (Nersa), declining sales volumes put a damper on the utility’s performance.

The utility is optimistic that a point of agreement can be reached.

Hadebe said Eskom would engage the regulator on “challenges we face”.

Eskom has also seen a 33% spike in municipal arrears, rising from R9 billion to R12 billion.

Hadebe said the qualified audit could have been avoided. Corporate governance issues at the utility has led to liquidity issues.

Since assuming the role of GCE following government’s announcement of a new board earlier this month, Hadebe said funders have requested the entity to address corruption. This, he said, has hindered the utility and investors’ discussion of the utility’s funding mix.

Hadebe bemoaned leadership issues at the utility, saying that leadership was not only about the appointment of the board, but more about the ability of the leadership of the institution to create an enabling environment.

When coming to the utility’s balance sheet, Hadebe noted that the company’s debt is not sustainable. This as Eskom’s gearing ratio is at 72%.

“There is a need to convert some of the debt ratio into equity,” he said.

Earlier in the presentation, the GCE noted that the utility has reached a stage where it is becoming clearer that the sustainability of Eskom cannot be achieved through borrowing.

The financial performance of Eskom showed that external auditors issued an unqualified review conclusion, with an emphasis of matter regarding Eskom’s going concern position.

Meanwhile, the utility reported EBITDA ((earnings before interest, tax, depreciation and amortization) of R30 billion (Sept 2016: R32 billion), due to the 2.2% tariff. Eskom’s net profit after tax came to R6 billion (Sept 2016: R10 billion), with higher depreciation and net finance cost due to new build units coming online.

However, generation plant performance improved, with plant availability at 83.2% (Sept 2016: 78.4%). Eskom had targeted 80% by 2020.

Board chairperson Jabu Mabuza said tariffs cannot be the panacea to Eskom’s challenges.

“Our role as board and management is to identify where problems are and how to solve them,” he said.

Nuclear

On the issue of whether the utility would pursue the nuclear build, interim Chief Financial Officer Calib Cassim said the utility cannot commit to nuclear given its current circumstances.

“If [we] don’t have a sustainable balance sheet now [we] can’t commit to nuclear if I have limited funds. Now the focus is on maintaining the current assets and then whether we can sustain nuclear in the future,” said Cassim.

The Presidency announced the new board in a statement on 20 January.

The road ahead

Hadebe said the utility needs to further engage investors and funders while also building credibility.

“We need further engagement with investors and funders. We need to build credibility [which is] something that is earned. We need to enhance our operational efficiencies,” he said. – SAnews.gov.za

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