04 January 2019, News Wires — South Africa’s struggling power firm Eskom expects to make a wider 20 billion rand ($1.5 billion) loss in the current financial year and wants steeper tariff hikes than it previously sought, its chief financial officer said on Monday.
The chief executive also said the government should consider injecting extra capital into state-owned Eskom to help it cope with what he said were low electricity tariffs.
Eskom, which previously forecast a 15 billion rand loss in the financial year ending in March, is vital to South Africa’s economy because it supplies more than 90 percent of its power but is drowning in around 420 billion rand of debt.
South African President Cyril Ramaphosa is trying to turn around the ailing company and has said he will announce a plan to shore up its finances in the coming weeks.
Eskom’s dollar-denominated bonds have rallied in recent days on hopes that Ramaphosa will unveil a restructuring plan soon.
On Monday, many issues fetched their highest since June 2018. The 2025 issue rose 0.8 cent to trade at 99.5 cents in the dollar and the 2023 bond nearly matched those gains to change hands at 99.45 cents, according to Tradeweb data.
Chief Executive Phakamani Hadebe told a mining conference in Cape Town the government should consider splitting the utility, using the term “functionally unbundling”.
Chief Financial Officer Calib Cassim said in Johannesburg the larger forecast loss would be due to higher-than-anticipated power plant maintenance costs and increased use of diesel and gas, which is typically more costly than coal for generation.
Cassim said Eskom was now requesting electricity tariff hikes of 17.1 percent in 2019/20, 15.4 percent in 2020/21 and 15.5 percent in 2021/22, steeper than a previous application for increases of 15.0 percent in each of those three years.
Eskom said the new request was based on changes to its sales forecasts and production plans, arguing that significant time had elapsed since it made its initial request.
South Africa’s energy regulator is expected to make a decision on Eskom’s tariff request in March this year.
“We need Eskom to be sustainable to supply electricity,” Cassim told a public hearing on the tariff increases.
“We are using one credit card to pay for another,” he said, saying Eskom was funding debt servicing with further borrowing.
If granted the revised tariff hikes, Eskom would still turn a profit only in 2022, Cassim said, showing the challenge facing the firm. ($1 = 13.3404 rand)