HomeIndustry SectorsGenerationStrong rand of no benefit to Eskom

Strong rand of no benefit to Eskom

The Komati power
station “’ part of the
national grid
Johannesburg, South Africa — ESI-AFRICA.COM — 06 January 2011 – The strong performance by the rand over the past few months is of almost no benefit to Eskom, despite the fact that the state-run power utility will be importing equipment to the value of nearly R90 billion over the next seven years as part of the group’s extended building programme.

The utility said that its hedging activities in the foreign-exchange market meant that it was difficult to derive any benefit from the strong rand. Eskom’s capital-building programme over the next seven years will cost it up to R300 billion. Eskom spokesperson Hillary Joffe said that about 30% of this would be spent on imports.

Joffe added that it was standard practice for Eskom to hedge against future exchange-rate fluctuations when new contracts were signed, so as to protect itself, especially against sharp falls in the value of the rand.

“In the case of the biggest building projects that Eskom is involved in at present “’ Medupi, Kusile, Ingula and their associated power networks “’ the import percentage is close to 39% of the total expenditure.” Medupi and Kusile are two new coal-fired power stations that Eskom is putting up in Limpopo and Mpumalanga respectively. Ingula is a hydroelectric power station in KwaZulu-Natal.

In January, the rand reached its highest level in three and a half years against foreign currencies like the US dollar, even trading briefly at R6.55/dollar, a level last seen in 2007. In 2010 alone, the rand strengthened by 10% against the US currency. Highs were also recorded against the
euro and sterling. This situation is traditionally very good for importers.

Joffe said that unfortunately most of Eskom’s biggest overseas purchases had already been fully contracted at exchange rates that were hedged. The greater majority of Eskom’s imports were in euros, with a small portion exposed to the dollar.