JOHANNESBURG, Gauteng — South Africa’s state-owned power provider, Eskom, has announced a staggering R30.35 billion profit for the 2026 financial year, effectively doubling the R14 billion recorded in the previous cycle. However, this headline-grabbing Eskom financial turnaround is masking deeper structural challenges, as the utility navigates a 6.2% drop in electricity sales and prepares for a historic market unbundling.
The utility’s improved bottom line arrives alongside a major operational milestone: South Africa has now gone more than a year without load shedding. Better power station performance has yielded an estimated 2 to 3 gigawatts of spare generating capacity, shifting the utility’s focus from supply restriction to customer acquisition. Consequently, the electricity availability factor (EAF) climbed by roughly 5 percentage points to 65.16%. Despite this gains, the EAF remains short of the 70% target due to unexpected breakdowns at select facilities.
Financially, the R30.35 billion profit was heavily underpinned by a 12.74% tariff increase that pushed total revenue to R355 billion. Simultaneously, operating costs plummeted by R11.5 billion, largely because stabilized coal fleets reduced the need to fire up expensive open-cycle gas turbines. Yet, utility leadership acknowledges that generating higher revenue while selling less electricity is an unsustainable long-term trajectory.
The Cash Flow Paradox and the R45 Billion Leak
While the accounting profits are robust, energy analysts point to a divergence between paper profits and actual liquidity. Power and energy expert and former Eskom executive manager Prof. Vally Padayachee noted that in corporate finance, “profit is an opinion, but cash is king.” According to Padayachee, actual cash flows remain constrained by plummeted sales volumes and massive outstanding municipal debt.
Eskom Chief Financial Officer Calib Cassim echoed the urgency of resolving municipal arrears to secure liquidity and protect the bottom line. Cassim stressed that continuous profitability is a prerequisite for improving the utility’s credit rating ahead of a planned return to the capital markets in 2028.
Cassim also highlighted a massive operational blind spot: energy losses. Currently, the utility fails to collect revenue on 13.1 terawatt-hours of lost electricity. At an average selling price of R220, this represents R29 billion in missing top-line revenue. When factored in with an additional R16 billion in related losses, the total unrecovered revenue sits at R45 billion. Cassim noted that if Eskom can secure just 50% of this lost revenue going forward, it would unlock R20 billion per annum in entirely new income.
A Legislative Revolution and the End of the Monopoly
Addressing public frustration over a perceived “pay more for less” model, Prof. Padayachee explained that current high prices are the result of decades of non-cost-reflective tariffs finally catching up with the system. To alleviate this burden, the government recently introduced amendments to the national electricity pricing policy—a document that had not been updated in 18 years, since 2008. Currently open for public comment, Padayachee described the amended policy as one of the most vital energy documents in the last 30 years, specifically designed to drive down electricity prices.
Crucially, the recent windfall profit will not delay the long-awaited unbundling of the utility. Driven by the Electricity Regulation Act—originally propagated in 2006 and significantly amended with presidential assent in August 2024—the South African energy landscape is set for a competitive revolution.
By April of next year, a five-year transition period will commence, officially ending the monopolistic hold of Eskom and municipalities. The new framework will establish a level playing field where private sector independent power producers (IPPs) and traders operate as equal entities. This requires the creation of an Independent Market Operator (IMO) and an independent Transmission System Operator (TSO).
Protecting the Balance Sheet During the Split
The transition to an independent TSO has been the subject of intense negotiations between Eskom and Business Leadership South Africa (BLSA). While the BLSA has prioritized an investor-friendly outcome, Eskom has cautioned against a “big bang” separation. The transmission assets in question are valued at R110 billion; removing them abruptly would severely dilute Eskom’s balance sheet and income statement. Following recent high-level meetings, both parties have agreed to a phased unbundling approach to ensure a win-win scenario that protects the utility’s financial stability while achieving market reform.
Regarding political interference, Padayachee noted that while an independent TSO empowers technocrats, electricity remains a public good. Therefore, government oversight via shareholder compacts will persist, though operational meddling is expected to decrease.
Heavy Industry Discounts and Economic Revival
The utility is also navigating complex negotiations regarding discounted rates for energy-intensive heavy industries. Eskom has proposed dropping rates from R1.35 to 62 cents per kilowatt-hour—a 90-cent discount. Initially, municipalities feared they would be forced to absorb this shortfall. However, recent media briefings clarified that Eskom and the government will shoulder the brunt of this discount, ensuring the burden is not transferred to other stakeholders or local governments.
According to Padayachee, this concession is a vital economic stimulus. Supporting heavy industry is essential for national job creation and economic growth, specifically to facilitate the revival of approximately 70 currently mothballed smelters and bring them back onto the national grid.
