Eskom’s plan to go from zero to hero 

Eskom has revealed a plan for the utility to return to profitability, with it expecting to break even in the 2025 financial year and post a huge R12 billion profit the year after. 

This comes after six years of consecutive losses, with Eskom posting its worst financial performance yet in 2023. The utility reported a R23.9 billion loss for the past financial year. 

The last time Eskom posted a profit was in 2016 when the utility had a brief spell of improved performance. Its plants were run hard, and open-cycle gas turbines (OCGTs) were used to stave off load-shedding. 

In 2017, the utility posted a loss. However, its financial problems date back well before then. Since 2006, it has had to deal with a growing revenue shortfall, which has ballooned from R1 billion to a cumulative R535 billion. 

To compensate for this shortfall, Eskom issued a significant amount of debt. Despite repeated government bailouts, the company has a total debt burden of R445 billion. 

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

However, the utility’s improved performance so far in 2024 has given Eskom’s management hope that it can also turn around its dire financial situation. 

In a performance update presented to the Standing Committee on Public Accounts (Scopa) on 9 October, the utility outlined its Profit Maximisation Programme (PMP). 

The PMP is a two-year plan that has several savings targets to ensure Eskom breaks even in year one of the programme (FY2025) and becomes profitable in the second year (FY2026). 

Ultimately, the PMP aims to make the utility financially sustainable in the coming years and reduce its reliance on government funding.

Eskom is already saving billions by using significantly less diesel to run its OCGTs. From 1 April to 22 August 2024, Eskom’s diesel expenditure was R3.59 billion, 75% less than the same period last year. 

This translates into R10.6 billion in savings for the utility. 

However, this is not enough to break even, with Eskom’s board setting a target of R16.2 billion in cost-saving measures for the 2025 financial year. 

The plan focuses on ‘quick wins’, such as improving the utility’s overall efficiency and minimising the impact of high-cost initiatives like running OCGTs. 

It also aims to enhance the collection of municipal debt, reduce theft and find new revenue opportunities. 

If these initiatives can continue into the next financial year, Eskom estimates it could return to profitability in FY2026 with a profit of around R12 billion. The utility is also targeting a profit margin of around 10%. 

Eskom recorded a pre-tax loss of around R200 million for the first quarter of its 2025 financial year, which is a significant improvement on its R6.9 billion loss for the same period last year. 

While this financial performance was partly attributable to reduced reliance on OCGTs, it was also the result of significant 13% electricity price hikes from April 2024. 

Easkom’s earnings before interest, taxation, depreciation and amortisation (EBITDA) improved by around 100%, and revenue was up 15%.

Based on the first quarter, Eskom said that it could show a significant R7.8 billion improvement on its forecast pre-tax loss for the year – R1.1 billion against the budgeted loss of R8.9 billion.

However, there are issues with Eskom’s current revenue model, which is reliant on cost-reflective tariffs being implemented in the coming years. 

On 23 September 2024, the National Energy Regulator of South Africa released Eskom’s multi-year price determination.

Eskom is requesting total revenues of R446 billion for the 2026 financial year, R495 billion for 2027, and R537 billion for 2028.

The proposed average price hike for Eskom’s direct customers is 36.15% for the period from 1 April 2025 to 31 March 2026.

For the subsequent years, the utility is seeking increases of 11.81% from 1 April 2026 to 31 March 2027 and 9.10% from 1 April 2027 to 31 March 2028.

These requested price hikes have received pushback from members of the government, with Electricity Minister Kgosienstho Ramokgopa saying the price of energy is spiralling out of control. 

Ramokgopa has repeatedly said the government could intervene to limit the price hikes and find some measure of relief for consumers.