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Eskom reports lower first-half profits

Cape Town - Eskom on Tuesday reported a profit of R9.3bn for the six months that ended on September 30, 2014. This was down 24% from R12.2bn for the same period the previous year.

While Eskom reported a profit of R9.3bn in the first half of its financial year, these profits are expected to decline to R0.5bn for the full financial year, the energy provider said in a statement.

They said this was because revenue in winter was much higher than during summer due to time-of-use tariffs to key industrial customers. It said there was less maintenance performed on Eskom power plants, which contributed to the profitability of the first half of the year, while tariffs were lower in summer and maintenance activities increased, resulting in higher costs.

Group revenue in the first half of the 2014/15 financial year increased by 5.4% to R81.bn (2013: R77.7 billion). This reflected the impact of the 8% tariff increase offset by a contraction in demand for electricity.

Revenue growth was offset by escalating primary energy costs due to increased purchases from independent power producers (IPPs) to help balance the demand and supply of electricity, increases in coal costs, and the continued use of open-cycle gas turbines.

Mission to gain financial sustainability

Eskom CEO Tshediso Matona said: “We will work to achieve financial and operational sustainability in a balanced manner, through internal efficiencies, the migration to cost-reflective tariffs through regulatory tariff processes, deferrals, or scope changes on projects, and government support.”

Eskom said its financial health has deteriorated over the past few years as a result of substantial cost increases, lower sales, and the lack of cost-reflective tariffs at a time when it has to invest heavily in building new capacity and power lines for the country. In addition, compliance with the new atmospheric emission legislation will result in significantly increased financial obligations.

Eskom started an internal financial efficiency drive called the Business Productivity Programme last year to cut costs and extract efficiencies within the organisation. Total cash savings of R9.bn are targeted for the 2014/15 financial year. But efficiencies alone will not resolve the company’s financial difficulties, it said.

Eskom teams up with inter-ministerial committee

Eskom finance director Tsholofelo Molefe said: “We are working with an inter-ministerial committee comprised of the ministers of Public Enterprises, minister of Energy and the minister of Finance to find sustainable solutions, and these efforts have yielded initial results, with the National Treasury announcing a support package for Eskom last month. This package will support liquidity in the short-term, but in the long-term it remains absolutely imperative that the tariffs must reflect the cost to supply electricity.”

“While electricity revenue increased 5.9% to R81.9bn in the period under review, sales volumes declined by 1.4% following the widespread mining industry strikes and the closure of the Bayside aluminium smelter. We made a fair value gain of R1.6bn on embedded derivatives in the period under review after the Bayside aluminium smelter had been closed,” said Molefe.

Revenue per kilowatt-hour sold increased to 74 cents, compared to 69 cents in the same period in the previous year, while operating costs rose to 62 cents from 55 cents.

The R200bn funding plan for the remainder of the Third Multi-year Price Determination from April 1, 2014 to March 31, 2018 is progressing well, with 32.8% of funding secured (R66bn).

On 13 September 2014, Cabinet approved a financial package in a bid to support Eskom’s liquidity and its financial sustainability and to ensure that the energy security of the country is maintained in an effort to aid GDP growth.

On 22 October 2014, the Minister of Finance, Nhlanhla Nene, announced that equity funding of at least R20bn would be provided to Eskom. The package is seen as a first, yet robust, step on the road to ultimate financial sustainability.

Electricity supply will be tight - Tsotsi

Eskom chairman Zola Tsotsi said: “We have said for some time that electricity supply will be tight until our capacity expansion programme is substantially completed. Our large new power station projects, Medupi, Kusile, and Ingula have reached a series of important technical milestones.

“Our wind power plant, Sere, has performed beyond expectation and started feeding power into the grid in October 2014 ahead of the scheduled December date.”

“We have seen several renewable projects from IPPs connected to the grid and delivering power. We anticipate that the supply from IPPs will grow steadily, assisting in managing the tight system.

“South Africans have played a significant role in helping to manage the electricity situation, and we continue to ask every electricity consumer to use power sparingly,” he said.

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