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JIMMY MOYAHA: Earlier today, we received a Sens announcement from Eskom about its yearly performance, which noted a loss of R55 billion for the last fiscal year. Still, Eskom is optimistic about returning to profitability next year.

Read: Eskom expects its first profit since 2017

Joining me today is Eskom’s CFO, Calib Cassim, to delve deeper into these figures. Good evening, Calib. It’s a pleasure to speak with you at this time of year. To begin, how do you view Eskom’s performance over the past year?

CALIB CASSIM: Thank you for having me, Jimmy. Up until our March year-end, we encountered a difficult set of operational and financial results, alongside governance challenges, resulting in a R55 billion loss.

We noted a year-on-year improvement of R9 billion in our loss before tax, primarily due to an 18% tariff increase during the year.

However, due to extensive load shedding and high diesel costs—spending around R34 billion on diesel this fiscal year—we also had to account for the derecognition of a deferred tax asset, which added R37 billion to our tax expense. This ultimately led to the net loss of R55 billion as of March.

JIMMY MOYAHA: Calib, concerning the issues you’ve highlighted, I noticed some governance and audit-related concerns. The external auditors submitted a twelve-page list of problems in their report to parliament, particularly a material uncertainty regarding Eskom’s ‘going concern’ status following the R55 billion loss.

Your team forecasts a return to profitability next year. Can you elaborate on this recovery? How do you shift from such a significant loss to profitability, apart from the deferred tax adjustment?

CALIB CASSIM: Excluding the deferred tax, we presented a loss before tax of R25 billion and a forecasted profit of R10 billion. Key factors for this turnaround include eliminating load shedding and enhancing operational efficiency, which will reduce our diesel expenses from R34 billion by around R20 billion year-on-year by March 2025.

Moreover, without load shedding, we expect a 4% year-on-year increase in sales.

For March 2024, we anticipate sales volume around 13 terawatt-hours, reflecting a 7% increase, while load shedding resulted in a R22 billion loss in revenue. We believe much of this can be recouped since many customers are installing rooftop photovoltaic systems, which provides a potential upside without load shedding.

Additionally, we’ve been negotiating with SARS regarding rebates for our diesel expenditures.

We finalized these discussions in October, allowing us to reclaim R9 billion, which will be reflected in the March 2025 income statement.

Furthermore, by focusing on various cost-cutting initiatives and benefiting from government debt relief converted to equity, we will lower our interest expenses as Eskom takes on less debt.

JIMMY MOYAHA: Calib, let’s discuss the pressing matter of revenues and outlook. As of November, municipalities owe Eskom R95.4 billion, nearly a 30% increase since the March figures. This indicates municipalities are struggling to clear their debts, complicating expectations for a healthy business performance. Will this necessitate further tariff hikes for consumers?

CALIB CASSIM: This is indeed a major concern for us as a board and management team. The minister has emphasized the unsustainability of current trends, and as of November, we faced R95 billion in arrears.

If this trend continues, we might see arrears rise to R110 billion by March 2025.

This creates two significant issues: if unresolved at the governmental level, it undermines the advantages we gain from the R250 billion debt relief. Additionally, we failed to recognize R9 billion in potential revenue due to our cash basis accounting requirement. If default rates rise, we will accumulate more unrecoverable amounts. While we contemplated a 2% arrear percentage in our tariff application, we are currently closer to 5%.

Read:
Municipal ‘Get out of debt free’ cards left standing … [Jun 2024]
Government support to municipalities for Eskom debt arrears appears to be bearing fruit [Oct 2024]

Our message is clear: this situation is untenable. Eskom cannot serve as a bank for municipalities. The minister has indicated that early next year, Eskom, together with him, his department, the National Treasury, and local government, must meet to discuss these matters.

He has proposed solutions, and we are committed to collaborating with the minister to adjust this trajectory.

JIMMY MOYAHA: Calib, regarding other significant challenges for Eskom, external auditors raised important audit issues surrounding the illegal generation of prepaid tokens. This is quite serious. Has Eskom’s recent move to recalibrate meters resolved the issue of illegal token generation, and can we consider this matter addressed?

CALIB CASSIM: Certainly, that was one initiative aimed at mitigating risks related to illegal tokens. We need to continue monitoring this trend, but it forms part of our overall strategy. Additionally, we intend to deploy around seven million smart meters over the next three years to further mitigate these issues.

Ultimately, though, Jimmy, we need to confront collusion and corruption head-on.

This includes addressing issues between Eskom employees and suppliers, which we must work on alongside law enforcement to undertake necessary legal actions. We look forward to the KRN2 rollout to help us tackle many of these matters, but we must remain vigilant before considering this problem resolved.

JIMMY MOYAHA: Addressing collusion and corruption is essential. The qualified opinion was partly based on ‘criminal conduct,’ which resulted in losses of approximately R6.7 billion. This is a grave issue directly affecting Eskom’s profitability.

Given the potential shift from a negative R25 billion to a positive R10 billion, the losses due to criminal conduct could add another R6 billion, plus R4 billion in irregular expenses noted in the audit. You mentioned governance concerns that total around R10 billion combined. How is Eskom addressing this issue? What strategies is the board implementing?

CALIB CASSIM: We have initiated two primary strategies. First, we established a project management office dedicated to high-level investigations, reporting directly to the CEO, in conjunction with our audit and risk committee.

The second approach involves consolidating our forensic investigations and security departments to gain a holistic view. We are working closely with the security cluster, including state intelligence and the Special Investigating Unit (SIU). We have witnessed recent arrests and convictions that signify progress.

Unfortunately, the actions of a few individuals tarnish the reputation of our committed employees at Eskom. We must address these bad actors.

JIMMY MOYAHA: Accountability is certainly necessary, and we will continue to monitor developments in this area.

We remain hopeful for the upcoming year and look forward to discussing a fruitful year ahead. For now, we will conclude our conversation. Thank you for your time and insights, Calib.

Calib Cassim, the chief financial officer at Eskom, joined us to discuss their financial year ending March 2024.

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