Eskom reports interim profit as chief executive warns of ‘unreliable and unpredictable’ power system

Eskom on Wednesday (15 December) published interim results for the six months ended September 2021, showing a net profit after tax of R9.2 billion – up from R216 million, despite supply constraints and South Africa’s ongoing national lockdown.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) of R44.8 billion, was up 58% due to higher revenue.

Revenue for the period grew to R135 billion (September 2020: R108.7 billion), an increase of 24.2%, due to a recovery in demand and sales volumes, combined with tariff increases, it said.

The recovery was largely a result of the phased easing of lockdown restrictions and the return to operations of many sectors of the economy, the state power utility said.

Sales grew by 8% to 100.9TWh (September 2020: 93.4TWh), with local and international sales increasing by 7.2TWh and 0.3TWh respectively. An improvement was seen across nearly all sectors, with the industrial and mining sectors most positively affected by the recovery of global commodity markets, leading to better profit margins and higher production by large mines and smelters.

It said that the fourth multi-year price determination (MYPD 4) coupled with successful court review applications resulted in a tariff increase of 15.06% for customers supplied directly by Eskom
from 1 April 2021, and a tariff increase of 17.80% for municipal and metropolitan distributors from 1 July 2021.

Primary energy costs grew by 13.7%, increasing to R61.8 billion for the period (September 2020: R54.3 billion).

“These costs are directly related to the volume of electricity generated from Eskom’s power stations as well as purchases from independent power producers (IPPs) and international imports required to meet electricity demand,” it said.

Electricity production increased by 6.9% from 111.1TWh to 118.7TWh, mostly through higher coal and nuclear production, as well as the more expensive Eskom open-cycle gas turbine
(OCGT) and IPP production.

“During the period, we wrote off R0.9 billion relating to damage from the explosion at Medupi Unit 4. The fire at Kendal Unit 1 resulted in a write-off of R86 million based on the preliminary
damage assessment,” said André de Ruyter, Eskom Group chief executive.

Operational performance

Average unplanned unavailability of generation plant during the six-month period was around 11,600MW (September 2020: 9,700MW), higher than the base-case assumption of 11,000MW
in the Winter Plan (from April to August 2021) and in line with the base case of 12,000MW in the Summer Plan (from September 2021  to March 2022).

During the period, load shedding was implemented on 21 days (September 2020: 19 days), comprising five days at stage 1, 14 days at stage 2, one day at stage 3 and one day at stage 4, the group said.

“Eskom and IPP OCGTs (open cycle gas turbine) were utilised frequently during the period to support the power system. Eskom and IPP OCGTs generated 1,234GWh year-to-date (September 2020: 787GWh), at a cost of R4.5 billion (September 2020: R2.6 billion),” it said.

Eskom said that average unplanned unavailability since 1 October 2021 has been around 13,700MW, necessitating increased use of OCGTs. Generation plant availability (EAF) of 65.27% was lower than the same period of the previous year (September 2020: 67.86%), and significantly worse than the shareholder target of 74%.

De Ruyter said that progress on the generation recovery plan continues. “Owing to liquidity challenges, funds for reliability maintenance have been constrained, leading to delays in the procurement of spares and the appointment of key contractors.

“To date, reliability maintenance has been completed on seven units, with another five units in progress.”

Eskom said that full load losses remained high, mainly due to high boiler tube failure rates and outage slips. For the period under review, 50% of outages met their due date (September 2020: 54.55%), significantly below the target of 80%.

Unplanned failures immediately following outages (post-outage UCLF) improved slightly to 19.66% (September 2020: 21.45%), contributing 0.89% to overall UCLF year-to-date.

Looking ahead

De Ruyter warned that the seasonality of Eskom’s performance means that there is considerable cost pressure in the second half of the financial year, driven largely by summer maintenance requirements and costs associated with ensuring the security of supply.

He said that while the phased easing of Covid-19 lockdown restrictions has led to an improvement in financial performance during the first six months of the year, ongoing risks for Eskom’s sales and revenue include supply constraints, load shedding and load curtailment, as well as a constrained economy.

“By the end of the year, we expect to record an after-tax loss of approximately R9.1 billion, as the lack of cost-reflective tariffs and high debt service costs continue to contribute to Eskom’s loss-making position.”

Sales of 197.1TWh are expected by year-end, which is 5.3TWh or 2.8% higher than the previous financial year.

The chief executive said that to achieve independent financial sustainability, remain a going concern and meet debt service requirements on a standalone basis, the price of electricity in South Africa must migrate towards a cost-reflective tariff.

“We have to emphasise that the power system is unreliable and unpredictable due to insufficient maintenance of generation plant over many years. Maintenance outages take around 24 months to plan, and take from three to six months to execute.

“The response to the pandemic prevented us from doing as much maintenance as we would have liked, while prevailing liquidity challenges continue to constrain funds available for maintenance,” he said.

“To date, we have released funding of R8.3 billion for outages during the 2022 financial year, and R8.2 billion for those in 2023, against a requirement of R10.7 billion next year.”

Read: Eskom warns it could be forced to take 16,000MW off the grid