South Africa’s Eskom Sees Fourth Annual Loss Amid Debt Woes

South Africa’s debt-stricken power utility is headed for a fourth consecutive full-year loss as it struggles to deal with continuing financial and operational problems.

The loss is expected to widen to 22 billion rand ($1.47 billion) in the year through March, compared with about 20.5 billion last year, Eskom Holdings SOC Ltd. said in a statement on its website Monday. The company reported an 83 million-rand profit in the first half -- a period that coincides with the South African winter, when tariffs tend to increase.

“Significant financial challenges remain, predominantly related to tariffs not being cost-reflective, coupled with an unsustainably high debt burden,” the company said. Electricity sales fell an unprecedented 10% in the first-half as lockdown measures designed to control the spread of the coronavirus pandemic dented demand.

The loss of revenue exacerbates the problems facing a monopoly that provides almost all of South Africa’s power and adds another obstacle to its already troubled finances. The government, labor unions and business groups last week endorsed a pact to find ways of reducing its 464 billion-rand debt.

While the framework by the group is a start, “a lot more work needs to be done” on the potential solutions before an approach to debt investors will be made, Chief Executive Officer Andre de Ruyter said.

Systemic Risk

Timelines for a turnaround plan that will split the business into transmission, generation and distribution businesses have also been extended. The company now expects a legal separation of transmission by December 2021 and for the other divisions to follow the year after.

Debt securities and borrowings were reduced by 20 billion rand in the six months through September, partly because the rand strengthened against the dollar. As about 66% of its borrowings are guaranteed by the South African government, “Eskom’s level of debt is a systemic risk to the fiscus and the country as a whole,” the company said.

Eskom expects to raise funding of about 40.7 billion rand by the end of March. It’s considering syndicated loans and bond sales, depending on market conditions, Chief Financial Officer Calib Cassim said in a presentation.

“In order to improve our financial position in the longer term, we require a considerable reduction in the debt profile or a sizable increase in cash flows through cost-reflective tariffs,” Eskom said.

Eskom said its performance is slowly improving. Still, it’s unable to meet demand because of ill-maintained generation units that forced the utility to implement power cuts for 19 days from July through September. The company this weekend had rotational blackouts for the first time since September.

©2020 Bloomberg L.P.

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