Johannesburg - Eskom, the South African power utility that got half the price increase sought for the five years through 2018, said it’s grappling with how to plug an income gap of about 191 billion rand ($19.1 billion).
The National Energy Regulator of South Africa, known as Nersa, on February 28 allowed Eskom to raise electricity prices by an average of 8 percent in each of the next five years, creating a 225 billion-rand cash-flow shortfall.
While the company will be able to absorb the shortfall this financial year and next, it’s still redrafting its strategy for the 191 billion rand needed in the period after that, finance director Paul O’Flaherty told reporters in Johannesburg.
The utility needs funds to meet a 500 billion-rand spending program to replace equipment and add capacity through 2017.
The power system is straining to meet the needs of the continent’s biggest economy, with supply exceeding demand by razor-thin margins after Eskom deferred maintenance on some aging stations to the colder winter months because of higher unplanned shutdowns in the summer.
“We will have to re-engineer Eskom to respond to the tariff increase,” Eskom chief executive Brian Dames told reporters.
“We can’t just make up by saving a bit of money here and there. It will require a fundamental rethink about what we do.”
The company may have to raise debt levels beyond the 400 billion rand budgeted for in its price application to the regulator, Dames said.
Eskom has about 203 billion rand of debt and interest outstanding, it said.
Profit Drop
The income shortfall will have no affect on the capacity- extension program, Dames said.
“We have solved the funding for our committed projects and will see them through,” he said.
It may also ask Nersa to reopen the tariff application if costs exceed the estimates in the application, Dames said.
Profit declined 61 percent to 5.18 billion rand in the year through March as operating costs climbed 31 percent to 54.2 cents per kilowatt-hour, the company said in a statement.
Costs rose because Eskom bought back power from large customers including the local ferrochrome-smelting operations of Glencore Xstrata in 2012, it said.
Sales dropped 3.7 percent.
Primary energy charges climbed 36 percent to 28.1 cents per kilowatt-hour, while coal expenses surged 24 percent, it said.
Eskom generates about 80 percent of its power by burning the fuel.
Capital Spending
The company charged an average of 58.5 cents per kilowatt-hour in the period, 16 percent more than a year earlier.
Average annual inflation in the period was 5.6 percent.
The company spent 60 billion rand on capital expenditure in the year through March, Dames said.
Eskom has already secured 83 percent, or 248.8 billion rand, of the 300 billion rand of funding it requires for its capital projects through 2017, and has used 144.1 billion rand of that, according to the statement.
The company will draw down a further 57 billion rand in the year through March, Treasurer Caroline Henry told reporters.
Eskom’s net maximum generating capacity increased to 41,900 megawatts by the end of March from 41,600 megawatts a year earlier.
One megawatt is enough to power 500 to 1,000 homes.
The company had an average of 46 days of stocks of coal in the year, compared with 39 days in financial 2012, it said.
Eskom paid 2.9 billion rand, or 83.6 cents per kilowatt- hour, to independent power producers and municipalities for electricity in the year, contracting 1,135 megawatts of capacity from IPPs, it said.
The country plans to add 3,725 megawatts from renewable sources by 2016 through a program of five tenders, with Eskom buying that power. - Bloomberg News