South African electricity parasatal, Eskom, has reported a net profit of R7.1 billion for the year ended 31 March 2014.  This marks a R2.1 billion increase from a R5.2 billion net profit achieved a year earlier. The additional revenue will be reinvested to support the company’s capacity expansion programme and to service debt.

Revenue for the financial year end in March, increased to R139.5 billion from R128.8 billion in the previous year, as a result of the 8% tariff increase and the flat demand for electricity (0.6% growth compared to the previous year).

The increase in revenue, however, was impacted by rising primary energy costs, especially on open-cycle gas turbines (OCGTs), and an increase in maintenance costs.

“This translated into revenue per kilowatt hour of 62.8c (2013: 58.5c), while costs per kWh in Eskom’s electricity business were 59.7c (2013: 54.2c). Primary energy costs have increased significantly by 14.2% to 32.0c/Kw,” said Eskom.

Progress on Power Plants
The utility said that its R300 billion funding plan was well on its way, with just over 90% of its funding secured.

National Energy Regulator of SA (Nersa’s) 2013 third Multi-Year Price Determination decision to grant  Eskom an 8% annual tariff increase, instead of the proposed 16%, left Eskom with a R225 billion revenue shortfall over a five year period between 2013 and 2018.

“A number of options are being pursued together with government, including the regulatory clearing account (RCA) adjustment and other funding alternatives,” said Finance Director, Tsholofelo Molefe.

Eskom is awaiting a decision from Nersa with regard to its submission for the evaluation and approval of the RCA balance for its previous MYPD 2 control period. The RCA mechanism allows Eskom to adjust for the over or under recovery in revenue to ensure that both Eskom and the customer are treated fairly.

The results of the under- or over-recovery are then acquired through the electricity tariff in the following years. Consumers will consequently experience a decrease or increase in electricity tariffs.

Molefe added, “Eskom’s financial sustainability is under pressure but we have investigated alternative funding, including possible equity and quasi-equity, in response. We have applied to Nersa for the RCA adjustment, and we have launched a business productivity programme to reduce cost, increase productivity and enhance efficiencies”.

“Eskom’s going-concern status will continue to be a key focus for the coming year, as the revenue shortfall created by the MYPD 3 decision cannot be solved through cost savings and efficiencies alone – cost-reflective tariffs remain a key imperative. Eskom has to balance short-term priorities with long-term sustainability requirements,” said Collin Matjila, said Eskom’s acting Chief Executive

The final unit at Komati power station has been returned to service with a total of 3 741MW. Medupi Unit 6 (794MW) is expected to run at full capacity at the end of 2014/beginning of next year. Kusile power station’s Unit 6 is due see the synchronisation with the grid in the second half of 2015, while the first unit of Ingula pumped-storage of 333MW is due for synchronisation in the second half of 2015.

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