26 November 2012 – Eskom has reported its interim results for the six months ending September 2012, and these results reflect a net profit of R12.6 billion, compared to R12.8 billion for the first six months of the previous financial year and R13.2 billion for the full 2011 financial year. However, profits for the full 2012 financial year are expected to be lower, with breakeven at best during the second half, when Eskom must take advantage of lower summer demand to do higher levels of maintenance on its power stations.

Revenue increased to R73.4 billion for the six months to September 2012, up from R63 billion in the same period in the previous year. This was driven mainly by the 16% tariff increase which the National Energy Regulator of South Africa (Nersa) granted Eskom earlier in 2012, after Eskom applied to the regulator to reduce the tariff increase from 25%.

However, the tariff increase was offset by a 2.9% decline in the demand for electricity due to weaker economic growth and industrial unrest which affected key customer sectors during the six months period. Eskom recently submitted its application to Nersa for a third multi-year price determination (MYPD3), requesting an average 16% tariff increase over five years.

Revenue per kilowatt hour sold increased to 64.9 cents (2011: 55.3 cents) for the six months to September, while operating costs rose to 47 cents (2011: 38.2 cents). Primary energy costs increased by 17.6% from 19.2 c/kWh in the six months ending September 2011 to 22.5 c/kWh for the current half-year period to 30 September 2012. Half of the costs are attributable to higher coal costs, and almost a third were as a result of the utilisation of open cycle gas turbines (OCGTs) and government’s environmental levy.

Since 2005, Eskom has spent R156.5 billion (excluding capitalised interest) on its build programme, which has so far added 5,776 MW of generation capacity to the national grid, as well as, 4,327 km of transmission network and 22,445 sub-station transformers.

Eskom’s funding plan is well advanced and approximately 80% of the funding needed for the new build programme has been secured. Eskom’s gross debt stood at R213 billion at end-September 2012 and is expected to go as high as R360 billion as Eskom completes its committed build programme over the next six years.

Rating agencies Moody’s and Standard & Poor’s downgraded their ratings of Eskom by one notch to Baa3 and BBB respectively last month, following their downgrades of South Africa’s sovereign rating. Their actions highlighted the need for Eskom to be financially sustainable.

“It is crucial that Eskom remains in a position to access local and international capital markets to raise funding for its new build projects at attractive rates,” finance director Paul O’Flaherty says. “Investment grade status is necessary to secure the balance of funding and is critical for long-term expansion post Kusile. Certainty on the application of the regulatory rules is essential from a ratings perspective.”

The embedded derivative liability (which represents the present value of the future opportunity loss of revenue to the end of the contracts) at end-September 2012 was just under R5 billion, reflecting the special pricing agreements which Eskom has with BHP Billiton’s aluminium smelters in KwaZulu Natal. Eskom has submitted an application to Nersa to review these special pricing agreements.