South Africa’s state power utility Eskom more than doubled its annual net profit to R30.3 billion ($1.9 billion) in the financial year ended March 2026, extending its recovery after years of losses, but rising municipal arrears and weaker electricity demand are raising questions about the durability of the turnaround. The utility reported its second consecutive profitable year as improved plant performance, cost controls and higher tariffs strengthened earnings, while electricity sales fell 6.2% and municipal debt climbed 17.9% to R111.6 billion.
The results mark a significant shift for Eskom, which recorded eight consecutive years of losses before returning to profitability in 2025. The improvement has been accompanied by a sharp reduction in load shedding, with South Africa experiencing only four days of power cuts during the latest financial year compared with 329 days in 2024. For an economy that has spent years absorbing the cost of unreliable electricity through lost production, higher operating expenses and investment delays, the improvement in system reliability has broader economic significance.
Eskom attributed the stronger financial performance partly to improved generating-plant availability, tighter cost controls and reduced reliance on expensive emergency diesel generation. The utility’s cost-optimisation and revenue-enhancement programme generated R22.4 billion in savings and revenue contributions during the year, exceeding its target. According to Eskom, these operational gains helped raise its earnings before interest, tax, depreciation and amortisation margin to 30.63%, from a restated 28.75% a year earlier.
Higher electricity prices were also central to the revenue improvement. Eskom’s revenue increased 4.1%, supported by a 12.74% regulated tariff increase, even as sales volumes declined to 178 terawatt-hours. The fall in demand was particularly pronounced among industrial customers, whose electricity consumption dropped by 9.7 terawatt-hours, or 22.5%, during the year.
That combination creates a complicated picture for the utility. Improved reliability is restoring the electricity system’s operational performance, but falling consumption limits the volume of electricity Eskom can sell to recover its costs. Some of the decline reflects structural changes in the market, including greater use of embedded generation, energy-efficiency measures and reduced industrial demand. The shutdown of the Mozal aluminium smelter after it failed to reach a tariff agreement with Eskom also contributed to weaker sales.
The shift in electricity demand is important because Eskom is simultaneously expected to invest heavily in the country’s future power system. The utility plans to increase capital expenditure from R45 billion in the 2026 financial year to more than R70 billion annually from 2029, with total group capital investment of R343 billion over the next five years. The programme includes investment needed to strengthen the grid and connect new generation capacity.
The scale of that investment means that profitability alone does not resolve Eskom’s financing challenge. The utility needs sufficient and predictable cash flow to maintain existing infrastructure while expanding transmission and modernising its network for a changing electricity market. South Africa is simultaneously adding renewable generation, encouraging private electricity production and restructuring the electricity industry, making the grid increasingly important as the link between new generation and industrial and residential demand.
Municipal debt is the most immediate financial threat identified by Eskom. Outstanding municipal arrears reached R111.6 billion at the end of March and had risen to approximately R119 billion by June. Eskom estimates that the debt could reach as much as R358 billion by 2031 if decisive measures are not implemented. The utility said earnings could have been about R15 billion higher had municipal arrears been collected.
The problem is particularly significant because municipalities and metropolitan authorities account for more than 40% of Eskom’s electricity sales. Persistent non-payment therefore affects not only the utility’s reported revenue but also its ability to generate operating cash and finance infrastructure. Eskom said R15.8 billion, equivalent to about 4.5% of revenue, was not recognised as revenue during the year because of the elevated risk that municipal, metropolitan and residential accounts would not be collected.
The municipal arrears problem also exposes a deeper weakness in South Africa’s electricity value chain. Municipalities purchase bulk power from Eskom and then distribute it to households and businesses, but some local authorities have struggled with weak revenue collection, technical losses, governance problems and financially constrained customers. The result is a chain in which weaknesses at the municipal level can eventually affect the balance sheet of the national utility.
Eskom and government have been pursuing alternative arrangements to address the problem, including distribution agency agreements and prepaid supply models. Earlier this year, the utility initiated consultations with municipalities that had failed to settle accounts or comply with conditions attached to the National Treasury’s municipal debt-relief programme. Eskom said the process was intended to protect the stability of the electricity system while addressing escalating arrears.
The issue is not unique to Eskom. Across Africa, electricity utilities often operate under financial pressure because tariffs do not fully cover costs, customers struggle to pay, transmission and distribution networks require investment, and governments face pressure to keep electricity affordable. South Africa’s experience demonstrates how utility sustainability ultimately depends on the financial health of the institutions and customers connected to the system.
For South Africa, the question is increasingly whether Eskom can sustain improved operations while the electricity market changes around it. Mining companies and other large industrial users are investing in their own renewable-energy projects, partly to reduce exposure to Eskom and secure more predictable power supplies. Recent investments by companies including Anglo American, Sibanye Stillwater and Exxaro illustrate how private generation is becoming part of the country’s industrial energy strategy.
That development has environmental as well as financial implications. Eskom still relies heavily on ageing coal-fired power stations, while mining companies and other electricity-intensive businesses are increasingly adding solar, wind and other renewable sources. The shift can reduce emissions and, where renewable power is competitively priced, lower operating costs. But it also changes the revenue base of the incumbent utility if large customers reduce their purchases from the grid.
This creates a potential tension between decarbonisation and utility economics. A more decentralised electricity market can improve energy security and reduce emissions, but Eskom must still recover the costs of maintaining the national grid, including infrastructure used by customers who generate some or all of their own electricity. The future tariff structure and market design will therefore be important to ensuring that private investment in renewable energy does not undermine the financial sustainability of the shared electricity network.
The grid itself is becoming a critical investment priority. South Africa has significant potential for additional wind and solar generation, but connecting projects to consumers requires transmission capacity. Eskom’s planned capital programme therefore has implications beyond the utility’s balance sheet: it will determine how quickly new generation can enter the market and how effectively South Africa can diversify away from its coal-heavy electricity system.
The utility’s improved liquidity provides some room for that investment. Eskom reported cash and cash equivalents of R124.9 billion at the end of March, supported partly by an R80 billion debt-relief payment from government. It subsequently used R38 billion of that cash to settle bonds that matured in April. Debt securities and borrowings stood at R356 billion at year-end and had fallen to about R320 billion by June.
Government support remains an important part of that financial recovery. Eskom’s improved balance sheet does not mean the utility has become independent of the state. Its role in the economy, the scale of its infrastructure requirements and the consequences of electricity-system failure continue to give it a close relationship with the sovereign. Fitch Ratings upgraded Eskom’s long-term issuer default rating to B+ in June, citing the strong linkage between the utility and the South African government alongside improvements in its operational and financial management.
The public-finance dimension is significant. Government assistance to Eskom competes with other demands on the national budget, while the utility’s infrastructure requirements are too large to be met indefinitely through state support alone. A more financially sustainable Eskom could therefore reduce pressure on public finances over time, but maintaining that trajectory requires stronger collections, disciplined expenditure and a regulatory environment that allows the utility and other market participants to invest.
Affordability remains another constraint. Eskom’s latest profit was achieved partly through tariff increases, while households and businesses continue to face pressure from higher electricity costs. For manufacturers, mines and smaller businesses, electricity prices directly affect production costs and competitiveness. For households, electricity affordability influences consumption and the ability to pay municipal accounts.
This creates a difficult balance for policymakers. Tariffs must provide sufficient revenue to maintain and invest in the electricity system, but excessive increases can encourage customers to reduce consumption, switch to alternative energy sources or delay investment. The fall in electricity sales during the latest financial year illustrates that this relationship is already becoming more complicated.
For African economies watching South Africa’s experience, the Eskom turnaround offers a broader lesson about energy-transition finance. Improving the reliability of an existing utility can deliver immediate economic benefits, but long-term sustainability depends on whether the utility can adapt to changing demand, finance new infrastructure and integrate renewable generation while keeping electricity accessible.
The transition also requires coordination between national government, municipalities, regulators, utilities and private investors. South Africa’s electricity reforms are gradually creating a more diverse market in which Eskom remains a major generator and network operator while independent producers and large customers take on a larger role. The financial arrangements connecting those participants will become increasingly important as the market evolves.
Eskom’s governance record remains part of that equation. Independent auditors issued a qualified opinion relating to the completeness of irregular-expenditure reporting under the Public Finance Management Act, although several previous qualifications and reportable irregularities were resolved during the year. Environmental compliance remains an outstanding reportable irregularity, according to Eskom.
Those issues matter because financial sustainability depends not only on earnings but also on governance, procurement controls and accountability. For an infrastructure institution handling billions of rand in capital investment, weaknesses in financial and environmental governance can ultimately translate into higher costs and reduced investor and public confidence.
The utility is also entering a leadership transition. Chief Financial Officer Calib Cassim, who has served Eskom for 24 years and played a central role in its recent turnaround, is due to retire during the financial year ending March 2027. Eskom says it intends to appoint his successor before the end of 2026.
The immediate financial results nevertheless show that operational reform can produce measurable gains. The more difficult question is whether those gains can survive the structural pressures confronting the electricity sector: municipal arrears, changing industrial demand, rising private generation, the need for large-scale grid investment and the costs of transitioning from coal.
For South Africa, Eskom’s return to profitability is therefore an important milestone, but not the end of its financial restructuring. The utility now has to convert improved operational performance into durable cash generation while investing in a power system that is becoming more decentralised and increasingly renewable.
For the wider African energy market, the case is equally relevant. Reliable electricity remains one of the continent’s largest constraints on industrialisation, while utilities face persistent challenges around tariffs, debt, infrastructure and affordability. Eskom’s experience shows that energy security and financial sustainability cannot be separated: a utility that cannot collect revenue cannot maintain infrastructure, while an unreliable system undermines the economic base needed to pay for it.
The next phase of Eskom’s recovery will therefore be judged less by the headline profit than by whether the utility can sustain reliability, collect what it is owed, finance its capital programme and remain financially viable as South Africa’s electricity market changes. Its latest results provide evidence of progress, but the R111.6 billion municipal debt burden shows that the underlying problems have not disappeared.
