State-owned power utility Eskom has raised its salary increase offer to trade unions to 5.5% from the 3.5% it proposed last year, a document seen by Reuters showed, though it remains well below what unions are demanding.

Eskom has been a long-term drag on Africa's biggest economy through its electricity cuts and financial woes. But a sharp improvement in the performance of its coal-fired power stations has allowed it to stop implementing nationwide blackouts. It reported its first full-year profit in eight years last financial year.

The revised wage offer was presented to the three major unions it negotiates with over salaries this week in a second round of pay talks.

Eskom proposed that the 5.5% pay increase come into effect on July 1, the day after its current three-year wage deal expires, the document showed.

The offer includes adjustments to other benefits, such as housing.

An Eskom spokesperson confirmed the utility's latest salary offer was 5.5%.

Unions are seeking pay hikes of up to 15%, far above South Africa's annual inflation rate which stood at 3.6% in December and which the central bank thinks may have peaked.

A third round of wage negotiations is scheduled to take place in February, said Khangela Baloyi, energy sector coordinator for the National Union of Mineworkers.

Eskom's three-year agreement reached in 2023 saw non-managerial employees' salaries increase by 7% each year.

The former state monopoly still generates the bulk of South Africa's electricity and would like to agree another multi-year wage deal.

Unions have gone on strike during previous wage disputes, triggering power blackouts.

This time around the potential impact of a strike on Eskom's operations is harder to gauge as the recent improvement in its generation fleet means it has excess capacity.