Eskom: R6 Billion Electricity Theft Undermines Profitability

• Eskom reported a net profit of R30.3 billion for the period, marking its second consecutive profitable year.
• The utility incurred R6.599 billion in non-technical losses due to electricity theft, including illegal connections, meter tampering, and illicit prepaid tokens.
• A 2024 online vending system compromise enabled the generation of illicit prepaid electricity tokens, contributing to these losses.
• Eskom missed its smart meter installation target by 24%, falling short by 190,000 units for the 2026 financial year.
• Municipal debt remains Eskom's largest financial threat, increasing to R111.6 billion by March and projected to reach R358 billion by 2031 without intervention.

The utility anticipates that these illicit tokens will continue to contribute to non-technical losses.

Eskom reported a net profit of R30.3 billion for the period, marking its second consecutive year in the black. This figure was restated from an earlier R14 billion projection for 2025 and was subsequently revised downwards by R2 billion to account for R980 million in fees owed to the National Revenue Fund and R1 billion in public liability claims. Chairman Mteto Nyati attributed this positive Eskom financial performance to operational recovery and cost discipline, indicating that the profit would facilitate reinvestment in green initiatives, customer experience, grid expansion, and coal fleet reliability.

Despite this profitability, the utility continues to grapple with significant financial vulnerabilities, including a substantial R6 billion electricity theft problem. Eskom's ability to continue as a going concern remains subject to material uncertainty, heavily relying on government support and the acquisition of new debt. Key risks undermining its financial stability include declining electricity sales, high debt-servicing costs, and escalating municipal arrears.

Municipal debt stands as Eskom's most formidable financial threat, having surged by 17.9% to R111.6 billion by the end of March, with an additional R300 million accrued by June. The utility warns that this deficit could balloon to R358 billion by the 2031 financial year if decisive interventions are not implemented. While the board asserts that Eskom possesses adequate resources to sustain operations and fund its capital program, and auditors Deloitte acknowledge measures for continued viability, these assurances are overshadowed by the persistent financial pressures.

Eskom's financial health is significantly undermined by non-technical losses, which amounted to R6.599 billion for the period, a slight reduction from R7.068 billion in the previous year. These losses stem from various forms of electricity theft, including illegal connections, meter tampering, bypassed meters, and the use of illicit prepaid electricity tokens.

A notable contributor to these Eskom non-technical losses was a 2024 online vending system compromise. This breach facilitated the generation of illicit prepaid electricity tokens for both Eskom and municipalities utilizing its vending platform. Once loaded, these tokens credit customers with electricity without generating any revenue, effectively forcing Eskom to absorb the cost of power supply. The utility anticipates that these illicit tokens will continue to contribute to non-technical losses.

Eskom acknowledges the difficulty in reliably measuring the potential future obligations arising from the exposure to illicit tokens. This uncertainty is due to the high degree of ambiguity surrounding the total number of illicit prepaid electricity tokens created and the quantity already in use. The ongoing impact of such South Africa illegal electricity tokens poses a significant challenge to revenue collection and financial forecasting.

In an effort to combat electricity theft and associated Eskom meter tampering costs, Eskom has implemented load reduction measures in areas frequently affected by cable theft, bypassed meters, and overloaded infrastructure. Crucially, areas where smart meters are installed are exempt from these load reduction protocols, incentivizing their adoption.

Smart meters are a cornerstone of Eskom's strategy to enhance billing accuracy, mitigate electricity theft, and reduce non-technical losses. These devices enable the utility to better account for electricity consumption and identify discrepancies, with data from connected meters used to detect both valid and illicit prepaid tokens. This technological approach is vital for improving revenue collection and operational efficiency.

However, Eskom's smart meter rollout challenges are evident in its missed targets. The utility aimed to install 800,000 smart meters to improve billing accuracy and reduce non-technical losses. For the 2026 financial year, Eskom fell short of this goal by 190,000 installations, missing its target by 24%. Previous reports have also indicated delays in meter conversions, highlighting ongoing hurdles in the deployment of this critical infrastructure.

The persistent issue of electricity theft, alongside the broader financial pressures, casts a shadow over Eskom's long-term viability. The utility received a qualified audit opinion due to incomplete records of irregular expenditure, underscoring systemic challenges in financial oversight. While the chairman emphasizes operational recovery and cost discipline as drivers of recent profitability, the underlying vulnerabilities remain substantial.

Eskom's dependence on government support and new debt, coupled with declining electricity sales and escalating municipal arrears, creates a precarious financial environment. The projected increase in municipal debt to R358 billion by 2031, if left unaddressed, represents an existential threat. The ongoing struggle against non-technical losses, including the impact of illicit prepaid tokens and the Eskom smart meter rollout challenges, directly impacts the utility's ability to generate sustainable revenue and fund essential infrastructure development.

Ultimately, while Eskom has demonstrated a capacity for profitability through internal efficiencies, the scale of external challenges—particularly the R6 billion electricity theft and the burgeoning municipal debt—necessitates decisive external intervention to secure its future. The board and auditors may assert current viability, but the material uncertainties highlighted in the financial statements underscore the critical need for sustained efforts to combat theft and resolve municipal payment issues.

Compliance officers should assess their organisation's exposure to electricity theft and review internal controls, particularly regarding smart meter data and prepaid token systems, to mitigate legal and financial risks. Legal counsel should advise clients on potential criminal prosecution or civil liability related to illegal connections, meter tampering, or illicit prepaid token usage, given Eskom's ongoing efforts to combat these losses.

Source: Original reporting via MyBroadband