Johannesburg - Eskom will build its own railway line in Mpumalanga to cut transport costs, as increased electricity demand prompts it to operate its more expensive coal-fired power stations at full capacity.
Bongani Nqwababa, Eskom's finance director, said yesterday that the company had decided to build the R1.8 billion railway line after it realised it would need to buy more coal from nearby mines to enable it to increase generation at some power stations to meet South Africa's growing appetite for energy.
Eskom usually operated some of its power stations, such as Majuba and Tutuka, at 75 percent of capacity because there were no dedicated railway lines to the power stations, which made it expensive to transport coal from the nearby coal mines. It used trucks to deliver coal to the power stations and when electricity demand accelerated more than it had projected, transport costs rose 50 percent.
Majuba and Tutuka are two of Eskom's large coal-fired power stations and have a combined capacity of about 7 764 megawatts.
Asked why Spoornet did not build the 68km railway line, Nqwababa said it would be cheaper for Eskom to do it. Eskom's cost of capital stands at 12.5 percent, compared with Spoornet's, which is between 17 percent and 18 percent. "Spoornet was our first choice because we are not in the rail business."
Eskom was waiting for approval for the project from the government, which is its only shareholder, and would negotiate a management contract for the railway line with Spoornet after a decision was made. Spoornet spokesperson Molatwane Likhethe said Spoornet and Eskom would make an announcement when everything was finalised.
Chief executive Thulani Gcabashe said Eskom's board had approved three major projects worth R41.3 billion this year, which would add 3 582MW to the country's grid, and planned to add more before the end of this financial year. The projects were a 2 250MW coal-fired station near Liphalele in Limpopo; a 1 332MW pumped storage power station in Drakensberg; and a 1 500km transmission line between Cape Town and Standerton in Mpumalanga, expected to start transmitting in two years.
Gcabashe reported a decline in net profit for the year to March to R4.6 billion from R5.3 billion in the 15 months to March last year. He attributed the drop to a warm winter last year and the closing of some gold mines.
About R1.3 billion of the profit was gains from embedded derivatives that arose from long-term electricity supply contracts with aluminium producers, which linked the cost of power to the price of aluminium and the exchange rate.
Revenue plunged to R36 billion from R43.2 billion last year. However, Gcabashe said the company's results showed that Eskom had a good platform for growth.