Electricity production growth moderated somewhat to 2.0% y/y in February after reaching 2.4% y/y in January. Growth in consumption slowed to 0.4% y/y versus January’s 1.2% y/y.
Eskom received another downgrade last week (29th March) from Moody’s, which recognised “the positive strides that the new Board and the new Interim Group Chief Executive have made in the two-month period that they have led the organization”, but highlighted concerns. These include “inadequate tariff increases in the face of flat demand, no tangible government support and a lack of a resilient business strategy that will ensure Eskom’s sustainability”. Moody’s reiterated that “Eskom’s large debt burden, amounting to ZAR367 billion as of 30 September 2017, could grow to potentially unsustainable levels and will, in any event, continue to weigh on its very weak financial metrics.”
In response, Eskom’s Interim Group Chief Executive, Phakamani Hadebe has said “(w)e have addressed the liquidity issue and other key challenges. The new Board and Eskom leadership are swiftly moving into the second intervention stage by formulating an integrated strategy that will yield favourable results”. Additionally, he is confident that Eskom’s credit profile will be enhanced going forward.
Energy regulator Nersa, is examining Eskom’s request for R66 billion pertaining to under-recoveries and overspending over the three preceding years. However Nersa has made it clear “that it is not open to steep tariff lifts in the future and that the power utility must look at closing inefficient power stations and cutting its head count and capital spending to tailor its cost base to lower sales volumes”.
According to the latest quarterly employment statistics survey, employees in the electricity industry are the highest paid within the formal non-agricultural sector. Eskom says it “is currently rolling out a plan to manage our employee numbers to optimal levels”. “We have implemented numerous levers to manage employee costs ranging from not replacing all attrition, efficiently managing variable employee costs, to re prioritising training and development.”
The opinions and views expressed are for information purposes only and are subject to change without notice. They should not be viewed as independent research, recommendations or investment advice of any nature.