Eskom’s profit drops by 24%

Published Nov 26, 2014

Share

Eskom, which has twice in recent weeks buckled under pressure and put the economy on a thin edge, reported a double-digit drop in profit in the first six months of 2014 as its finances were stretched to meet its challenges.

It recorded a profit of R9.3 billion for the period to September 30, down 24 percent from R12.2bn for the comparative period in 2013. These profits are expected to decline to R500 million for the full financial year.

Chief executive Tshediso Matona said yesterday that profits were under pressure over the past few years as a result of substantial cost increases, lower sales and the lack of cost-effective tariffs at a time when it had to invest heavily in building new capacity and power lines.

While group revenue rose by 5.9 percent to R81.9 billion in the period under review compared to R77.7bn in 2013, sales volumes declined by 1.4 percent, following the widespread mining industry strike and the closure of BHP Billiton’s Bayside aluminium smelter.

Group revenue increase was as a result of the 8 percent tariff increase granted by the National Energy Regulator of South Africa, offset by a contraction in demand for electricity.

Matona said group revenue in winter was much higher than in summer due to time-of-use tariffs to key industrial customers and there was less maintenance performed on power plants, which contributed to the profitability of the first half of the year.

Matona was making his maiden presentation of Eskom’s half-year results to September. He said the increase in municipal and Soweto debt was of serious concern. It escalated to R4bn from R2.6bn in March.

In September, the government approved a financial package in a bid to support Eskom’s liquidity and its financial sustainability, and to ensure the energy security of the country was maintained in an effort to aid growth in gross domestic product.

On October 22, Finance Minister Nhlanhla Nene announced an equity funding of R20bn into the power utility through the sale of state assets.

Following this, credit rating agencies did not downgrade Eskom’s rating further after it was downgraded with that of South Africa.

Tsholofelo Molefe, the finance director, said: “Any further downgrade would seriously impede Eskom’s ability to raise external funding or significantly increase the cost at which Eskom is able to borrow.”

Eskom said it had connected more than 1 000 megawatts (MW) of renewable energy to the grid and had contracted 4 280MW more with independent power producers (IPPs). A dispatchable load of 1 417MW was available under the demand response programme.

Eskom said there were also challenges connecting future IPPs to the grid, dependent on grid strengthening and refurbishment.

Matona said South Africans would be living on the edge for some time as the utility battled pressure due to unplanned power outages. He said load shedding would continue for some time and he understood why people were unhappy about this.

“Our management and supply situation has weakened. We are now paying the costs of having operated the way we have,” he said.

Load shedding, said Matona, was only implemented as a last resort to prevent a longer, more damaging shut-down of the entire system.

Matona said Eskom’s power system remained significantly constrained. “The performance of our plants needs attention because they are old. This cannot be achieved overnight. We are asking all South Africans to make a contribution.”

Related Topics: