South Africa's Eskom Profit Plunges 89%; Situation to Worsen

(Bloomberg) -- South Africa Eskom Holdings SOC Ltd. sees everything from finances to operations getting worse in the coming months as the struggling state-owned utility rushes to finalize a turnaround plan.

First-half profit plunged and the company’s debt burden remains “impossibly high,” Jabu Mabuza said at a briefing in Johannesburg Wednesday. “We’re not selling enough electricity’’ in order recover costs, he said. “Eskom is in a state of severe financial difficulty.’’

Eskom is struggling with declining demand as it takes steps to emerge from multiple scandals involving graft and mismanagement. In the meantime, the threat of power outages loom, which would add pressure on the economy that plunged into a recession earlier this year.

The company, which has been identified by ratings agencies as a key threat to South Africa’s economy, is discussing its turnaround plan with the Department of Public Enterprises and President Cyril Ramaphosa. Potential options to cut borrowings range from equity injections to debt relief, however asset sales are not on the table, Mabuza said.

Aging Fleet

Rolling power cuts, known locally as load shedding are a possibility for the remainder of the year, Chief Operations Officer Jan Oberholzer said. Low levels of maintenance at Eskom’s aging fleet of power stations has contributed to lower generation availability.

A wage settlement and one-off payment made earlier this year to end a labor strike at the utility has also weighed on the balance sheet. The company’s full-year loss will exceed the 11.2 billion rand ($800 million) that it previously expected, based on current estimates, said Chief Financial Offer Calib Cassim.

More numbers from the presentation:

  • The utility reported improved liquidity and securing 73 percent of funding for 2018-19, a rare bright spot.
  • Sales volumes dropped 0.8 percent in the six months through September 30.
  • The utility’s profit fell to 671 million rand in the six months through September from 6.3 billion rand a year earlier.
  • Finance costs rose to 15.2 billion rand from 11.9 billion rand
  • Coal costs rose by 7 percent during the first half.
  • Power from independent producers increased 29 percent, mainly due to volumes being higher.

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