Eskom debt to rise to R500bn plus

Anoj Singh. (Carin Smith, Fin24)
Anoj Singh. (Carin Smith, Fin24)

Eskom’s debt was R322 billion at the end of March, and Anoj Singh, Eskom’s chief financial officer, said the utility was likely to take on another R327 billion in debt over the next five years.

Eskom’s latest annual report showed that the debt would grow at a rate of R68 billion a year for the first four years before dropping to R53 billion in the fifth year as part of R339 billion in planned capital expenditure in the next five years.

The power utility’s debt was likely to peak at “R500 billion-odd” after three years, Singh told City Press.

Investec’s Kamilla Kaplan said that “Eskom’s rising debt also increases the risk that the government could have to bail out Eskom again in the future at a time when the state is on a path of fiscal consolidation aimed at avoiding a downgrade in the country’s credit rating”.

Singh said that in five to six years, there would be “a lot of free cash flow”, and Eskom would be able to reduce its debt.

Paul Marty from Moody’s said, given that Eskom was continuing with its capital expansion and that its free cash flow, comprising operating cash flow less capital expenditure, would stay negative, it was expected that its debt would continue to increase.

Eskom announced last week that it had concluded loan agreements with the African Development Bank for R20 billion.

Singh said demand for power didn’t strictly follow GDP, but Eskom was optimistic that growth would pick up.

Eskom’s five-year projection was that local electricity demand would increase by 0.8% a year over the next five years, which equates to total electricity growth of 4% over the period.

Brian Molefe, Eskom’s CEO, said the utility’s international sales of power to the rest of Africa had increased because of a power surplus in the local market since August.

International sales were set to be a lot higher this year, he added, and Eskom was planning to drive growth via exports, said Singh.

Turning to costs, Singh said Eskom was expecting the price of coal to increase by between 6% and 8% a year over the next five years.

Eskom has signed 65 power-purchase agreements with independent power producers (IPPs), which would add 4 900MW of IPP capacity by March 2021.

So far, 3 392MW of IPP capacity has been connected to the grid, of which 2 145MW is renewable.

Ben Ngubane, Eskom’s chairman, said: “South Africa’s energy mix is expected to shift considerably towards renewable over the next two decades.”

A key issue that Molefe raised was that the recently introduced IPPs were contributing just 4% to Eskom’s energy production, but 18% of the utility’s energy costs. “The high cost of IPPs is a concern,” he said.

Eskom paid its executive directors R75.3 million, including R18.3 million in bonuses, in the previous financial year, up from R50.6 million the year before.

Molefe was paid R9.5 million, including a bonus of R2.5 million.

Ngubane said that Eskom executives had been paid bonuses due to their performance.

“The board has performed exceptionally well,” he said.

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