ArcelorMittal CEO Paul O'Flaherty. Picture: Chris Collingridge.

Eskom needs to improve its credit rating in order to ensure its financial sustainability, finance director Paul O'Flaherty said on Tuesday.

“We as a company need to be financially sustainable,” he told reporters in Johannesburg.

Releasing Eskom's interim results, O'Flaherty said the parastatal aimed to achieve investment grade status as a stand-alone company by 2018.

Eskom relied on government support for its investment grade rating. Currently, 80 percent of the funding was secured for its R300 billion capital investment programme.

Investment grade status was necessary in order to secure the balance of this funding, and was critical for Eskom's long-term expansion, said O'Flaherty.

Currently, Eskom was rated Baa3 by Moody's, BBB by Standard & Poor's, and A by Fitch.

It had been downgraded by one notch, after South Africa's sovereign debt was re-graded.

These ratings were too low for investment grade rating, impeding Eskom's ability to raise funds, thought the company had been boosted by government support.

South Africa “could not afford” a further decline in its sovereign credit rating, he warned..

Debt resulting from its capital build programme would be fully repaid only in 2042.

“If you don't maintain your assets for the next 25 years, you will not be able to repay the debt,” said O'Flaherty.

Demand for electricity had declined.

“We were predicting that sales would go down,” he said.

Eskom posted electricity sales of 110,766 Gigawatt hours (Gwh) for the six months to 30 September 2012.

For the same period one year ago, sales of electricity reached 114,043Gwh.

Sales had contracted due to industrial action in the mining sector, processing problems experienced at a smelter, the impact of power buybacks during the first quarter of the financial year, and poor market conditions, he said.

Electricity sales are subject to seasonal fluctuations and Eskom made most of its profit in the first half of its financial year.

Eskom CEO Brian Dames said Eskom had built a solid foundation.

“With three and a half years of sound financial results, Eskom is a more stable, more predictable company,” said Dames.

Dames said electricity sales had also declined during the 2008 recession, and in the late 1990s.

“We have seen some changes in customer behaviour. It is very important to have a plan and implement the plan,” he said.

Eskom's costs were increasing.

Primary energy costs increased by 14.3 percent to reach R25 billion for the six months, compared to R21.9 billion for the previous period.

Operating expenditure rose by 24.1 percent, reaching R26.9 billion from R21.7 billion previously.

Profit for the second half of the year would be much lower than the R21.6 billion posted for the first half, said Dames.

Because repairs and maintenance were scheduled for the second half, full year profit could be below that of the first half.

“If we break even for the second half, I think it will be a good performance,” he said.

Eskom had secured 80 percent of the funding it needed for its R300 billion expansion programme, with Medupi's first unit to come online by the end of next year.

Eskom would spend over R41 billion over the next five years to strengthen, refurbish and expand the distribution network.

Despite a tight electricity supply, South Africa had not experienced load-shedding since April 2008.

Eskom's repair and maintenance bill had increased markedly, as some of its power stations approached 50 years of age.

“This winter we spent far more on repairs and maintenance, compared to any other winter period,” O'Flaherty said.

In addition, severe winter weather, including snow storms in KwaZulu-Natal, had impacted its maintenance bill, said Dames.

“This is about how resilient we are as a company to adapt to climate change.”

Dames also announced O'Flaherty had resigned. He would leave the company after the next annual general meeting, in July next year. - Sapa