EDITORIAL: Eskom’s fragile comeback depends on political courage

Eskom’s first profit since 2017 is the kind of victory politicians and managers love to parade: neat numbers, flashy percentage improvements and a rosy capex pledge. 

Viewed through our lens, it is better described as numbers that impress until you pull back the curtain and find two elephants on the balance sheet: a regulated tariff path that shortchanges the utility by about R250bn over three years, and municipalities that are fast becoming commercial deadbeats with arrears racing towards R329bn. Add them up and you get a R550bn-plus systemic funding gap that no procurement fix, efficiency push or PR campaign can paper over. 

Eskom delivered a R24bn profit before tax, aided by a one-off SA Revenue Service (Sars) rebate and lower diesel costs. These are real wins. Fair enough. But strip the rebate out and profit sits nearer to R12bn. That’s respectable until one realises how quickly that is eaten away by missing revenue and doubtful receivables.   

The multiyear price determination-6 (MYPD-6) decision by the National Energy Regulator of SA (Nersa) effectively pins tariffs to single-digit increases over the next three years, falling way short of the nearly 20% Eskom had asked for to soak up the servicing costs of its ageing fleet of coal-fired power stations.     

Municipal arrears, meanwhile, have surged from R5bn in 2015 to tens of billions now, and are projected to break R300bn by 2030 if the trend persists. The upshot is that Dan Marokane, the CEO, cannot convert operational improvements into sustainable business without cash actually landing in the bank.

This combo makes any promise of breaking up Eskom, or an orderly five-year R320bn capex programme, a speculative exercise in wishful accounting. Unbundling distribution is the next step in the reform of the energy market. It requires a stand-alone, healthy balance sheet company, which in turn needs clean receivables. Spinning off distribution while customers remain insolvent is the corporate equivalent of selling a house with the roof leaking. Attractive in theory, ruinous in practice. 

Eskom’s distribution agency agreements (DAAs) and the so-called CORE cost-cutting programme amount to crisis management. The DAAs can stabilise collections, and CORE may extract at least R50bn in efficiency gains. Even so, treating both these interventions as substitutes for the dual shock would be dangerous accounting. 

Both halves of the crisis — the tariff trajectory and municipal debt — are political. Nersa can claim technical independence, but the regulator’s decision on the acceptable tariff path is ultimately political. Regarding municipal arrears, the choice is starker. Do we insist on governance and billing reform, or do we keep subsidising dysfunction with the taxpayer’s chequebook until the cheque bounces?   

Mzila Mthenjane from the Minerals Council SA was blunt and correct: better service delivery increases willingness to pay. But “better service delivery” is not a magic wand. It requires capacity, budgets and, most importantly, governance reforms that bite into patronage and administrative rot. Those are precisely the decisions that require political courage. The good thing is that Operation Vulindlela has set its sights on local government as the next area of reform. We wait and see. 

Eskom’s recovery is a test of governance and political honesty. The utility can end load-shedding and make savings on fuel, but money still needs to move from meters to the bank. The political class must choose between two unattractive options: admit the need for higher, transparent tariffs and enforce municipal payment, or keep kicking the can and hand the bill to the taxpayer later.

Political courage is the scarce resource here. If it is not deployed, this year’s profit will be remembered not as the start of a turnaround but as the calm before a much larger storm.