Eskom is in serious financial trouble, with interest expenses far outstripping operating profits, indicating that it is no longer there. ability to repay.

Over the past decade, Eskom has been plagued by mismanagement, corruption, increased employee spending, and massive cost overruns on Medupi and Kusile.

These factors have contributed to Eskom amassing a huge debt that has reached the point where it is putting pressure on the country’s finances.

Since 2011, Eskom’s debt has grown at a rapid rate. Total liabilities and liabilities of the power company peaked in 2020 at RR 637 billion and Rs 532 billion respectively.

Eskom currently has a debt of Rs 566 billion, of which Rs 402 billion is interest payable.

The level of debt is so unmanageable that Eskom’s chief financial officer, Calib Cassim, wants the government to take on a debt of Rs 200 billion.

debt does not necessarily signal a financial problem. Many companies increase debt by expanding profitable operations.

However, a problem arises when an organization’s debt increases while its ability to repay its debt decreases.

A company’s ability to repay debt can be determined by comparing its operating profit with the interest expense on its debt.

In the case of Eskom, its interest expenses have outstripped its operating profit over the past four years. He indicated that he could no longer repay his debt.

Eskom’s latest financial statements show that it can only cover 13% of its interest expenses with its entire operating profit.

When an institution can no longer cover its interest expenses, its debt continuously increases in what is known as a debt trap. This usually means that businesses borrow to pay off their loans.