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Slow sales nip Eskom’s profit

Donwald Pressly

Eskom’s results for the six months to September reflected the impact of declining demand for electricity due to slower economic growth and industrial unrest, chief executive Brian Dames said yesterday.

20/11/2012 Brian Dames ceo of Eskom presenting their Interim results at Sunninghill Gauteng. (455)Photo: Leon Nicholas. Credit: INLSA

Dames was candid in his prediction that the full-year profit would be lower than the interim profit. A reasonably strong revenue stream in the first six months was attributed to higher demand during the winter months. Demand was expected to slip in the summer, when Eskom would be spending more on maintenance.

Net profit for the six months to September fell to R12.6 billion, compared with R12.8bn for the interim period last year and R13.2bn for the year to March.

Financial director Paul O’Flaherty noted that sales of 110 766 gigawatt-hours (GWh) for the half year represented a 2.9 percent decrease from last year. He mirrored Dames’ view that sales in volume terms had contracted, owing to industrial action in the mining sector and poor market conditions.

O’Flaherty said lower growth rates were projected to continue. Year-end projected sales had been adjusted down to 219 342 GWh from the budgeted 222 083 GWh. However, revenue per kilowatt-hour increased by 17.3 percent year on year “primarily as a result of the 16 percent tariff increase” granted by the National Energy Regulator of SA.

Interim revenue was up to R73.3bn from R63.9bn.

Pressed on whether plans to add generation capacity were necessary if this pattern of reduced demand was set to continue, O’Flaherty emphasised that it was better to have more, rather than too little, capacity. Eskom is set to spend R60bn on the build programme this year.

Eskom declared itself a stable company despite recent rating agency downgrades, arguing that its bottom line was unaffected by a R200 million outstanding debt owed by electricity users in Soweto, a drop in demand from industrial users, and mounting debts owed by local governments.

Asked whether the Soweto debt had had an impact on the tariffs charged by Eskom, which incensed 16 percent on average in the last year and look set to rise at a similar rate from next year, O’Flaherty said it had no bearing on the tariff hikes. The debt owed to Eskom, which supplied the area directly, was growing, he added.

While no figures were provided on the amount owed to Eskom by municipalities in South Africa, it is understood to run into billions of rand.

Asked if troubled companies, including foundries that provide components for the motor industry in the Eastern Cape, could source their electricity directly from Eskom to avoid prohibitive “mark-ups” for distribution by local governments, Dames said this was unlikely as municipalities were licensed to supply. About half of the municipalities are empowered in this way.

“This is a constitutional issue… there is a municipal right to supply and… also they are licensed. Direct supply can only happen through a proper licence process.”

Countless foundries and other companies that feed the Eastern Cape automotive industry have complained at hearings of Parliament’s trade and industry committee that they have reached “the tipping point”. Continued trading was in danger, they warned.

Dames acknowledged that the purchase of electricity by industrial consumers had dropped from 25.7 percent of all sales to 23 percent. Mining, which suffered strikes and violence during the period, raised its stake slightly from 14.5 percent to 14.7 percent.

Residential consumption rose from 4.8 percent to 4.9 percent of sales while commercial and agricultural revenue grew from 6 percent to 6.5 percent of sales. The largest user, municipalities, rose from 42.1 percent to 43 percent of sales.

Asked why some municipalities were not paying their bills, O’Flaherty said it was a “well known fact that the municipalities’ main revenue stream is electricity… [either] their customers are not paying or they are not managing themselves properly. I make no opinion on that.”

Local Government Research Centre director Clive Keegan said it was difficult to estimate the debt owed by municipalities as Eskom always cited “client confidentiality agreements”. It was only when Eskom threatened municipalities with bulk supply cut-offs that “we have any idea of the quantum of the debt”.

Several municipalities in the Eastern Cape, North West and Free State had been threatened with cut-offs, Keegan said.

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