South African power utility company, Eskom, has experienced its fair share of financial challenges in recent years. In 2005, Eskom’s debt was R30 billion and in March last year, it had risen to R496 billion.
In 15 years, the debt had risen because of years of mismanagement, corruption, and a significant number of financial irregularities. While many considered Eskom to be too far gone to be rescued, Chief Executive Officer Andre de Ruyter worked tirelessly to change this outlook.
Andre de Ruyter has held the position for more than 18 months and while his appointment had initially raised questions, it has become apparent that this was the best decision that was made for Eskom.
Can De Ruyter rescue Eskom and how?
For the first time in Eskom’s history, a CEO has managed to reduce debt by a whopping R90 billion, reducing R496 billion down to R401 billion by repaying maturing debt and making necessary changes in the exchange rate.
According to de Ruyter, there were clear signs that Eskom is making some headway in the collection of repayments from municipalities, with collaborations to collect the debt from ratepayers across South Africa.
However, what does this mean for the price of electricity? According to De Ruyter, electricity tariffs will increase. While Eskom is doing its part to manage costs and keep them under control, municipal debt alone has seen increases, with municipalities owing Eskom R39 billion, 10% of the overall outstanding debt of Eskom that must still be paid.
Following its earnings report, Eskom reported a slightly lower loss of R18.9 billion, showing tremendous improvement over the last year.
Eskom has reported R14 billion worth of savings that it hopes to increase to R20 billion in the current fiscal year, hoping for further support from the government to de-leverage and reduce the remaining R400 billion in debt.