15 June 2012 – Eskom has reported a sound financial performance for the third consecutive year, earning a surplus which will be reinvested in full in the company to support its expansion and service debt. This comes after two years in which Eskom has reshaped its business to position it for better performance and future growth.
Eskom showed net profit of R13.2 billion for the year to end-March 2012, up from R8.4 billion for the previous year and only slightly above the R12.8 billion which the company reported for the first half of its financial year to end-September. Eskom’s business tends to be seasonal, with most of its profit earned in the first half of the year, which covers the winter months when tariffs for large customers are higher and maintenance costs are lower.
CEO of Eskom, Brian Dames, says, “We are a different company to what we were two years ago. We have put a strategy in place to transform Eskom into a high performance utility and position it to grow. Although we are not there yet, we have now put the building blocks in place to take the company forward.
“Eskom’s strong performance over the past two years, and the decision by our shareholder to sacrifice some of its return on equity, enabled us to apply successfully to the National Energy Regulator (Nersa) in March to reduce the average electricity tariff increase for the current year to 16%, from the 25.9% which Nersa originally granted us.”
The year to end-March 2012 saw progress on Eskom’s capacity expansion programme. Two of its three return-to-service power stations, Camden and Grootvlei, have been commissioned and the third of these stations, Komati, is two thirds complete. Eskom has now installed a total of 5.8 GW of new generating capacity, 3,899 km of high voltage transmission lines and 20,195 MVA of new transformer capacity since the start of the capacity expansion programme in 2005. The programme, which also includes two large new coal-fired stations, Medupi and Kusile, a pump storage scheme, Ingula, and new transmission infrastructure, will ultimately add a total of 17.1 GW to the grid by the time it is completed in 2019.
The year to end-March 2012 saw only minimal growth in electricity sales, which increased by 0.2% to 224,785 GWh, falling short of the forecasted 1.2% increase. This reflected weaker than expected economic activity and industrial action in some sectors, as well as lower winter demand from large power users. However, the lower demand also reflected success in Eskom’s energy efficiency programmes, which have yielded accumulated verified demand savings of 3.0 GW since 2005, equivalent to five units’ worth of the output of a typical six-pack power station.
Electricity revenues increased to R113 billion (2011: R90.4 billion), mainly as a result of the 25.8% tariff increase granted by Nersa. Costs rose as Eskom put initiatives in place during the year to manage a tight power system. A 29% increase in the cost of primary energy per kWh was the main driver of higher costs for the year to end-March, with coal burn costs rising by 20.8% per tonne and Eskom spending R3.3 billion to buy power from independent power producers (IPPs). Eskom has contracted 1,008 MW of installed capacity from IPPs and municipal generators on a short or medium term basis, at an average price of 77c per kWh.
Eskom has a R300 billion funding plan in place to finance its capacity expansion programme out to 2019, and 78% of this funding has now been secured. Eskom’s total borrowings stood at R182.6-billion at end-March, up from R160.3 billion at the previous year-end. The total is expected to grow to over R300 billion over the next three years as Eskom draws down on the loan agreements it has in place to complete the capacity expansion programme.
“We have a healthy liquidity and funding position and we have managed to maintain our credit ratings, even though the outlook has been changed from stable to negative, in line with the sovereign rating,” Eskom’s finance director Paul O’Flaherty, says.
Keeping the lights on for South Africa will continue to be a priority for the 2012/2013 financial year, as will improving safety in Eskom’s operations. Eskom will also focus on delivering on the build programme, with a special focus on Medupi. It will also pursue programmes to enhance the efficiency of its operations and the reliability of its power stations, and continue to focus on transformation of the organisation to support South Africa’s broader macro-economic objectives. Eskom will apply to Nersa later this year for a new multi-year price determination which will take effect from 1st of April 2013.