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Eskom’s profits have fallen by 50 per cent

Eskom has revealed its integrated annual results for the year ending 31 March 2015 and the news isn’t all that great.

CEO Brian Molefe said that even though the company managed to achieve an EBITDA of R25.2 billion, its profit fell by around 50 per cent from R7.1 billion in the last financial year, to R3.6 billion for this financial year.

It did however see a slight increase (6.9 per cent) in revenue, while cost-cutting measures managed to save the company R9 billion. In total, the company’s revenue was R146.3 billion.

Molefe said that Eskom’s finances were in the black, but it had to borrow money for the diesel generation plants.

“We were cash positive, but due to capital expenditure we had to borrow money. So yes, we have a cash flow gap, primarily because we have capital expenditure. Our operations are not fundamentally flawed, as it is the funding for capital expenditures that pushed us into a negative position. We do not think Eskom is insolvent,” he said.

Molofe also explained that Eskom’s financial recovery, while the fall in profits was above expectation, will be achieved through, among other things, cost-effective electricity pricing and internal savings. Eskom applied to the national energy regulator (Nersa) for a hike in the electricity price, which was eventually denied by the regulator in June this year.

Eskom explained at the time that it needed to increase the electricity price so that it could buy more diesel to power the generators that prevents loadshedding. During his presentation, Molefe said that it wants to get the money needs upfront.

“We are spending money on diesel at the moment, and we want to start asking for some of the monies for diesel up front. Our request of the money for diesel up front has been refused, but the money itself has been agreed, so merely the timing was in dispute.”

While Nersa refused its its request for a price hike, it did say that it could go back to the drawing board and try again at a later stage – which is what Eskom plans to do. “We will have to go back to Nersa to show hopefully that we have been prudent. It was important that Nersa said we are entitled to the money for diesel, and we will have to deal with the tariff (hike) matter again,” Molefe said.

Loadshedding remains a topic of hot discussion, and Eskom has on many occasion said that the power-cutting measures are necessary in order to prevent a full-scale meltdown of the grid. With power generation in mind, Eskom has in the last 10 years added 6 237MW generation capacity, 5 816km transmission lines and 29 655MVA substation capacity since 2005.

How much load was shed during the year? Well, Eskom said that a total of 548GWh was lost due to load shedding – which accounted for 0.3% of total sales.

Molefe also explained that Independent Power Producers (IPP) supplied a capacity of 1.8 GW to the Eskom power grid.

“Capacity of 5 701MW has been contracted with IPPs at 31 March 2015. Eskom signed contracts for a total of 3 887MW under the IPP procurement programme since inception. A total of 1 795MW of renewable IPP generation capacity has been connected and is providing power to the grid. Renewable projects with signed power purchase agreements are at various stages in the construction phase,” Eskom said in a media statement.

Molefe said that IPPs play a huge role in providing extra electricity to the grid. “IPPs play an important role in ensuring security of supply at a time when our generating capacity is closely matched or exceeded by electricity demand, by providing space for maintenance and reducing the need for load shedding. IPPs also provide much needed renewable energy to our energy mix.”

In previous statements, Molofe said that Eskom will embark on a “maintenance festival” in an effort to keep the power generating equipment in good working order – but those plans have been scuppered by unforeseen circumstances.

“Increased unplanned maintenance from breakdowns of ageing plants have limited the chance for planned maintenance and impacts plant availability,” the company said. He added that Eskom has supplied electricity on average to 96% of the country, and that loadshedding in now only two hours per day.

In the media statement, Eskom said it “needs space to execute philosophy-based preventative maintenance to improve plant performance while avoiding load shedding. The immediate focus will be on sustained maintenance and operational efficiency to reduce the unpredictable breakdowns in plant and in the medium- to long-term to commission new generation capacity to alleviate the constrained power supply system.”

[Image – CC by 2..0/Matt Katzenberger]

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