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Eskom’s operational performance remained strong despite tough trading conditions
Tuesday, 30 January 2018: Whilst Eskom’s operational performance remained strong for the six months ending on 30 September 2017, the company is facing significant financial challenges going forward.
The company achieved generation plant availability of 83.2% against a target of 80% which matches our 80% energy availability 10% planned maintenance and 10% unplanned maintenance by 2020 Generation Sustainability Strategy.
The new build programme is on track with Medupi Unit 4 having achieved commercial operation on 28 November 2017 and Kusile Unit 1 having achieved commercial operation on 30 August 2017 adding a combined 1 594 MW to the national grid. In addition, 350km of transmission and distribution lines were constructed and 1 000MVA transformers commissioned.
Eskom has also concluded its interim results having connected 100 380 new households to the electricity grid.
Eskom’s Interim Group Chief Executive Phakamani Hadebe during his presentation earlier today said that the financial challenges experienced during the first six months of the financial year are primarily due to flat revenue attributable to the 2.2% price increase for 2017/18 and sales volumes declining by 1.9%, exacerbated by escalating municipal arrear debt. “There was also the 2016/17 audit qualification on irregular expenditure which has led to access to funding being restricted,” he said.
Hadebe ( #eskom_ceo ) said Eskom has had a series of meetings with the bankers, lenders and investors over the course of last week, and that he was optimistic that Eskom would be able to raise the required funding for its capital investment programme.
“We are in discussions with the domestic financial institutions and the prognosis is positive. We are confident that we will be able to close the current R20 billion funding gap before the end of March 2018,” he said.
Due to tough trading conditions that were exacerbated by the qualified audit opinion and lapses in corporate governance, Eskom’s funding plans were limited during the period under review, resulting in a constrained liquidity position.
Eskom’s Acting Chief Financial Officer, Calib Cassim said EBITDA (earnings before interest, tax, depreciation and amortization) decreased to R30 billion compared to R32 billion in the same period last year. Cash from operations also reduced to R22 billion from R32 billion. The liquidity position also slipped from R30 billion to R9 billion.
Revenue decreased by 2% to R96 billion, which is attributable to declining sales volumes and a 2.2% tariff increase for the 2017/18 financial year.
Cassim said good progress has been made and he is confident that the qualified audit opinion that was raised by Eskom’s external auditors in the 2016/17 financial year would be closed out by year-end.
Eskom Chairperson Jabu Mabuza said that the new board, which has already met two times last week, has to take decisive action and find credible solutions to the complex challenges that impede Eskom’s sustainability.
“As the Board, we strongly believe that what underpins the stabilisation of Eskom is fulfilling our duty to improve trust and restore investor confidence in order to access financial markets and to re-establish the credibility of this strategic organisation, which will be celebrating its 95th anniversary in March.The issuing of the interim results today is one of the many more necessary steps in the journey of its renewal,” said Mabuza.
Commenting on rating agency Moody’s decision to downgrade Eskom last week, Mabuza said: “The decision by Moody’s to downgrade the company’s rating on Friday is understandable but stands as a beacon of motivation to double our efforts in our united purpose to ensure financial sustainability. We are mindful that this will not be easy, but as a collective we have the skills, the strength and the courage to turn things around.”
He added that: “Our mandate is non-negotiable: we need to root out financial mismanagement, malfeasance and maladministration as a critical foundation to restoring transparent and effective governance. We also need to entrench financial and business discipline in order to rebuild confidence in this great institution.”
Eskom’s efforts to improve trust and restore investors’ confidence received a boost when five senior officials who were implicated in corporate governance lapses and impropriety   left the employ of Eskom last week, including former chief financial officer Anoj Singh who resigned.
The investigations on other senior managers and executives who are implicated in various allegations of impropriety are ongoing, and disciplinary action will be taken against those whom evidence of misconduct exists.
“I believe that through a display of inspirational and ethical leadership, and through a collaborative and diligent approach between the Board, the Executive Committee and the 47 000 Eskom employees who are proud, and committed to living in, and serving, South Africa, Eskom remains motivated to move towards a successful future - to deliver on our mandate and to remain South Africa's trusted and credible electricity supplier,” he said.
“With the right people and support structures in place, of priority is entrenching financial and business discipline as a foundation to restoring the credibility and integrity of the utility with financial markets. These are some of the key principles that are critical to stabilise, reform and ultimately set Eskom up for sustained success.”