Mounting debt owed to Eskom by municipalities is an undisputed threat to Eskom’s financial sustainability, said Eskom chief executive André de Ruyter.
Speaking at The Joburg Indaba on Thursday, De Ruyter said the utility had no choice but to take action to recover the arrear debt by municipalities, which was at R31.4 billion at the end of August.
Eskom has had to resort to aggressive measures such as the attachment of the bank accounts and seizure of assets belonging to defaulting municipalities as part of our intensified efforts to collect this unpaid debt. “In such a situation, there are no winners,” he said.
According to Eskom’s financial modelling, the power utility could only achieve independent financial sustainability if its debt balance was reduced from nearly half a trillion to R200 billion. This and a closing cash balance of R30 billion, and an EBITDA ( Earnings Before Interest, Taxes, Depreciation, and Amortisation) margin of 35%.
“Our debt was a staggering R488 billion as at end March 2020; as you may imagine, the interest bill on this is unsustainable, and requires us to borrow money to pay interest,” said De Ruyter.
“As a country, we must enforce the principle that those who use electricity must pay for it.”
Meanwhile Eskom was embroiled in a court battle, which was set to take to the superior courts over the decision by Nersa to recover R69 billion in misappropriated equity from the power producer last year. A decision that meant consumers could expect tariffs to increase from 116.72 c/kWh to 128.24 – an increase of 9.8%, which will be in effect in April next year. This was in addition to a 5.22% tariff increase expected in 2021.
High court judgment granting leave for appeal to the National Energy Regulator of South Africa (Nersa) over its bid against the former’s recovery of misappropriated equity to the tune of R69 billion.
De Ruyter stated that Eskom’s revenue challenges were a result of lower sales volumes, which saw an annual decline of 1% for the past decade. He also blamed Nersa’s granting of “non-cost-reflective” tariff increases granted.
“Without cost-reflective tariffs, our business efficiency efforts will be of short-term benefit. Eskom has, thus, reviewed various revenue decisions by Nersa through the high court,” said De Ruyter.
“Unfortunately, this has been the only course of action available to a licensed entity in reviewing a revenue decision. Eskom does not want to be in court with its regulator, and looks forward to the appropriate legislative changes to allow for a less adversarial approach to resolving our differences.”