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Jabu Mabuza, Eskom Chairperson

Whilst Eskom’s operational performance remained strong for the six months ending on 30 September 2017, the company is facing significant financial challenges going forward.

This was announced on 30 January 2018 during the Eskom 2017 Interim Results, held at Megawatt Park, Sunninghill, South Africa.

The company achieved generation plant availability of 83.2% against a target of 80% which matches our 80% energy availability 10% planned maintenance and 10% unplanned maintenance by 2020 Generation Sustainability Strategy.

The new build programme is on track with Medupi Unit 4 having achieved commercial operation on 28 November 2017 and Kusile Unit 1 having achieved commercial operation on 30 August 2017 adding a combined 1 594 MW to the national grid. In addition, 350km of transmission and distribution lines were constructed and 1 000MVA transformers commissioned.

Eskom has also concluded its interim results having connected 100 380 new households to the electricity grid.

Eskom’s Interim Group Chief Executive Phakamani Hadebe during his presentation earlier today said that the financial challenges experienced during the first six months of the financial year are primarily due to flat revenue attributable to the 2.2% price increase for 2017/18 and sales volumes declining by 1.9%, exacerbated by escalating municipal arrear debt.

“There was also the 2016/17 audit qualification on irregular expenditure which has led to access to funding being restricted,” he said.

Hadebe said Eskom has had a series of meetings with the bankers, lenders and investors over the course of last week, and that he was optimistic that Eskom would be able to raise the required funding for its capital investment programme.

“We are in discussions with the domestic financial institutions and the prognosis is
positive. We are confident that we will be able to close the current ZAR20 billion funding gap before the end of March 2018,” he said.

Due to tough trading conditions that were exacerbated by the qualified audit opinion and lapses in corporate governance, Eskom’s funding plans were limited during the period under review, resulting in a constrained liquidity position.

Eskom’s Acting Chief Financial Officer, Calib Cassim, Eskom Acting Chief Financial Officer said EBITDA (earnings before interest, tax, depreciation and amortization) decreased to ZAR30 billion compared to ZAR32 billion in the same period last year. Cash from operations also reduced to ZAR22 billion from ZAR32 billion. The liquidity position also slipped from ZAR30 billion to R9 billion.

Revenue decreased by 2% to ZAR96 billion, which is attributable to declining sales volumes
and a 2.2% tariff increase for the 2017/18 financial year.

Cassim said good progress has been made and he is confident that the qualified audit
opinion that was raised by Eskom’s external auditors in the 2016/17 financial year would
be closed out by year-end.

Jabu Mabuza, Eskom Chairperson said that the new board, which has already met two times last week, has to take decisive action and find credible solutions to the complex challenges that impede Eskom’s sustainability.

“As the Board, we strongly believe that what underpins the stabilisation of Eskom is
fulfilling our duty to improve trust and restore investor confidence in order to access financial markets and to re-establish the credibility of this strategic organisation, which
will be celebrating its 95th anniversary in March.The issuing of the interim results today is
one of the many more necessary steps in the journey of its renewal,” said Mabuza.

“The decision by Moody’s to downgrade the company’s rating on Friday is
understandable but stands as a beacon of motivation to double our efforts in our united
purpose to ensure financial sustainability. We are mindful that this will not be easy, but as
a collective we have the skills, the strength and the courage to turn things around,” said Mabuza.

“Our mandate is non-negotiable: we need to root out financial
mismanagement, malfeasance and maladministration as a critical foundation to restoring
transparent and effective governance. We also need to entrench financial and business
discipline in order to rebuild confidence in this great institution.”

Eskom’s efforts to improve trust and restore investors’ confidence received a boost when
five senior officials who were implicated in corporate governance lapses and impropriety
left the employ of Eskom last week, including former chief financial officer Anoj Singh who
resigned.

The investigations on other senior managers and executives who are implicated in various
allegations of impropriety are ongoing, and disciplinary action will be taken against those
whom evidence of misconduct exists.

“I believe that through a display of inspirational and ethical leadership, and through a
collaborative and diligent approach between the Board, the Executive Committee and the
47 000 Eskom employees who are proud, and committed to living in, and serving, South
Africa, Eskom remains motivated to move towards a successful future – to deliver on our
mandate and to remain South Africa’s trusted and credible electricity supplier,” he said.

“With the right people and support structures in place, of priority is entrenching financial
and business discipline as a foundation to restoring the credibility and integrity of the utility
with financial markets. These are some of the key principles that are critical to stabilise,
reform and ultimately set Eskom up for sustained success.”

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