From a R7 billion profit to R24 billion loss in a decade

Eskom’s finances have been on a downward spiral for the past decade, with its profit swinging from R7 billion in the 2014 financial year to a loss of R23.9 billion for the 2023 financial year. 

While the utility’s operational performance improved remarkably in 2024, Eskom will take years to complete a similar turnaround regarding its financial health. 

State-owned enterprises are designed to be profitable businesses that contribute to the fiscus through dividends to the government. 

Eskom was the prime example of this model throughout most of its history, generating significant profits to give money back to the fiscus. 

Crucially, for the type of company Eskom is, it generated enough cash to invest in maintaining its infrastructure and expanding its generation capacity. 

For around 85 years of its 101-year history, Eskom provided South Africa with cheap, reliable electricity. Towards the end of the 20th century, the utility provided half of all electricity in Africa. 

By 1990, Eskom had completed a significant build programme over three decades to ensure energy self-sufficiency. It had a total capacity of 40,000MW and provided some of the lowest-cost electricity globally. 

The company even won Power Company of the Year at the Global Energy Awards in 2001, showing just how well-run it was at the turn of the century. 

Questions were raised regarding the government’s plan to meet increased electricity demand in the future in a White Paper on the energy policy of South Africa in 1998. This paper warned Eskom’s capacity would be fully utilised by 2007. 

These concerns were dismissed by the government at the time, and Eskom continued to perform well, allaying any fears from critics. 

The utility’s profit continued to grow, reaching R6.4 billion in 2007 – almost double the R3.7 billion generated in 2003. 

However, 2007 was also the year that cracks began to show. As the White Paper predicted, Eskom was unable to meet demand, resulting in the first national power outage in South Africa later that year. 

In 2008, the government implemented load-shedding for the first time, looking to address the supply-demand imbalance through rotating power cuts across the country.

It was also the beginning of a steep decline in Eskom’s profitability, with the government commissioning the utility to build two new coal-fired power plants, Medupi and Kusile. 

The government also refused to allow private sector participation in the electricity generation sector, fearing rising prices and that Eskom would be outcompeted. 

Due to the urgency of the situation, Eskom rushed the design of these two new coal plants, which resulted in numerous design flaws. 

Coupled with rampant corruption and lengthy delays, these power plants are still not fully operational 16 years and R464 billion later. Eskom produces less electricity post-Medupi and Kusile than it did before. 

These cost overruns significantly impacted Eskom’s financial health, with a loss of R168 million in 2008 and a huge R9.7 billion loss in 2009. 

Since then, Eskom’s profitability has been highly volatile, often rising or dipping by billions of rands each year. This starkly contrasted with Eskom’s consistently rising profit in the late 1990s and early 2000s. 

Due to these large swings in profitability and the increasingly costly buildout programme, Eskom’s debt burden began to rise and accelerate as its performance continued to deteriorate. 

As a solution, successive Eskom CEOs neglected maintenance and ran the existing coal-fired plants hard to minimise load-shedding and, in some years, end it. 

Effectively, this was short-term gain for long-term pain as it resulted in units at these plants increasingly failing as they were pushed beyond their limits.

The problems at Medupi and Kusile compounded the rapid decline in the operating performance of Eskom’s ageing coal-fired power plants. These two new plants were intended to replace the older plants as they were steadily shut down. 

The result was increasing electricity supply deficits and prolonged load-shedding at higher stages to artificially reduce demand. 

Eskom’s financial health was not spared from this period of mismanagement and poor capital allocation, with the real effects only beginning to show in its annual reports now. 

Since 2006, Eskom has had to deal with a growing revenue shortfall. It began small, with a R1 billion shortfall that year, which was easily covered by issuing debt. 

However, this shortfall ballooned and is now at a cumulative R535 billion following 17 years of declining performance.  The period of mismanagement saddled the company with a massive debt pile of R424 billion.

Its debt-servicing costs on that burden now exceed R40 billion a year, significantly limiting its ability to invest in new capacity and maintain its infrastructure. 

Since its last profit in 2017, Eskom’s profitability has not fluctuated as wildly as it did a decade earlier, as it entered into a steady decline and an ever-deeper loss. 

At the end of the 2023 financial year, its loss widened to R23.9 billion, and its chairman, Mteto Nyati, said the utility would have to cut costs to ensure its financial stability. 

Nyati said they are focussing on containing costs at Eskom and rooting out the wrong people.

The Eskom board has asked chief executive Dan Marokane to benchmark the company against international power utilities.

This is to establish how efficiently Eskom is running. It includes whether they have too many employees.

“This is where it is going to be painful. In the next phase, we will be reducing costs. This is leadership’s job and needs to be done,” he said.