Eskom says all is well: Is It?

Eskom Statement 

Eskom  reported a sound financial performance for the fourth consecutive year, earning a surplus which will be reinvested in full in the company  to support its expansion and service debt.

“We have delivered sound business performance, indicative of the progress being made, during a tough year. We have continued to put the building blocks in place to become a sustainable company which can power the South African economy and improve the  quality of life of our people, now and into the future,” said Eskom Chief Executive Brian  Dames.

“We have kept the lights on for the past five years and made significant  progress on our new build programme, as well as driving energy efficiency and increasing our role in South Africa’s development.”

Eskom showed net profit of R5.23-billion for the year to end-March 2013. Eskom tends to earn most of its profit in the first half of the year, which covers the winter months when tariffs for large customers are higher and maintenance costs are lower.

“We have three big agenda items for the year ahead. We are committed to keep the lights on while the power system remains constrained, and while increased levels of plant maintenance are required for our Generation, Transmission and Distribution assets. We will focus on ensuring that the new base-load power stations deliver first power to the national grid. And we must re-shape our business to adapt to the limits imposed by the 8% annual average tariff increase granted by the National Energy Regulator of South Africa (NERSA) for the next five years,” Dames said.

Revenue for the year to end-March 2013 increased to R128,8 billion, from R114,8 billion in the previous year, with a decline in electricity sales offsetting a 16% increase in tariffs  (which was reduced after Eskom applied to the National Energy Regulator (Nersa) to reduce the increase from the original 25%). Sales volumes declined by 3.7% to 216 561GWh, the lowest since 2006, reflecting lower than expected economic growth, as well as the impact of industrial action, the power buyback programme and the verysuccessful demand side management programme.

This translated into revenue per kilowatt hour of 58.5c (2012: 50.3c), while costs per kWh in Eskom’s electricity business were 54.2c (2012: 41.3c). Primary energy costs rose by 36.1% to 28.1 c/kWh, making up almost half of operating costs.

The cost of coal burnt increased by 24.2%, driven mainly by higher costs and lower output from the cost-plus mines feeding Eskom power stations.

Eskom’s demand side management initiatives achieved 2 244GWh of electricity savings, outperforming the targets set by Nersa and the government. This brings the accumulated verified demand savings since 2005 to 3 587MW, equivalent to the output of a typical power station.

Eskom made significant progress on its new build programme during the year under review, despite the challenges experienced. A record R60 billion was invested in infrastructure during the year and since the new build programme began in 2005, Eskom has delivered 6 017 MW of new generating capacity as well as 4 686 km of new transmission lines and 23 775 MVA of new substations.

The year under review also saw progress towards the introduction of renewable energy on to the grid, as well as on its commitment to increase the participation of independent power producers in the market. Eskom started construction on its own wind farm, the R2.4 billion Sere project, as well as signing power purchase agreements for more than 2400 MW of renewable energy with new independent power producers (IPPs) procured by the Department of Energy.

As at end-March 2013, Eskom had contracted total capacity of 1 135 MW from a range of IPPs (2012: 1 008 MW). The total paid to IPPs and municipal generators during the year under review was R2.9 billion or 83.6 c/kWh (2012: R3.3 billion or 77 c/kWh).

Total debt increased to R202,9 billion as at end-March 2013, as Eskom continued to draw down funds for its new build programme. The funding plan for the build programme is well advanced with 82.9% now secured, enabling Eskom to complete all committed projects. “Financial sustainability will be crucial, as is the support of government, to ensure we can maintain an investment-grade credit rating and raise the debt we need, at rates which are affordable for the country,” Dames said.

“We are pleased with Eskom’s steady financial performance and we commend them for managing a tight electricity system and keeping the lights on in very difficult conditions,” said the Minister of Public Enterprises, Malusi Gigaba. “We will continue to work with Eskom to improve operational performance, maintain financial sustainability and deliver on the build programme. It is imperative that it succeeds in what it does, particularly with regard to delivering on new electricity capacity that the economy requires for growth, investment and job creation.”

Eskom reports annually on its triple bottom line, providing measures of its socioeconomic impact and its environmental and safety record along with its financial performance. A total of 144 558 homes were electrified during the year to 31 March 2013. Since inception of the electrification programme in 1991, a total of more than 4.3 million homes have been electrified. Broad based black economic empowerment attributable spend amounted to R103.4 billion or 86.3% of total measurable spend for the year (2012: R72.1 billion or 73.2%), supporting transformation in the economy. This includes R26.5 billion on black owned companies, R5.7 billion on companies owned by black women, and R1.2 billion on companies owned by black youth. In Eskom’s new build programme, 83% of the contracts since inception have been awarded to South African companies to support job creation and industry development.

Eskom continued to develop skills, training 2 144 engineers, 835 technicians and 2 847 artisans as well as 5 701 participants in Eskom’s youth programme. Eskom also invested R194.3 million in corporate social initiatives, impacting organisations with more than 650 000 beneficiaries.

“We have had four years of sound financial results that show stability, predictability and progress. Initiatives have been implemented to transform Eskom and improve its operations,” said Eskom chairman Zola Tsotsi. “Eskom is 90 years old this year and it is investing in the future. We are looking ahead to provide the electricity South Africa needs to power growth and development.”

It was announced in November that Paul O’Flaherty, Eskom’s Finance Director and head of Group Capital, had resigned and would be leaving after the 2012/2013 annual results. Today is therefore his last day at Eskom. “Paul has made an enormous contribution to Eskom and to South Africa since he joined us in 2010,” said Dames. “He was just what Eskom needed at the time, and we have become great friends and worked very well together. On behalf of all at Eskom, I thank him very much and wish him all the very best for the future.”

Eskom Treasurer Caroline Henry has been appointed acting Chief Financial Officer while Dan Marokane, Group Executive Technology and Commercial has been appointed acting head of Group Capital, demonstrating the depth of skills and ensuring continuity at Eskom.

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