Eskom reports a strong financial performance
Eskom today released interim results which show a continued strong financial performance, with a surplus that will be reinvested in the business to ensure Eskom is financially sustainable and can repay the debt raised to fund its new build programme.
The results for the six months to end September 2011 reflect increased net profit of R12.8 billion (2010 R9.5 billion), on revenue which increased to R63.9 billion (2010; 51.1 billion).
Eskom's financial results tend to be highly seasonal. All the profit is earned in the first half of the financial year, which covers the winter months when electricity demand is higher and large customers pay higher tariffs, while maintenance costs are lower because less planned maintenance takes place.
The revenue growth was driven mainly by higher electricity tariffs, reflecting the 25.8% increase (including the environmental levy), which the National Energy Regulator (Nersa) allowed Eskom from 1 April 2011. "We are pleased to report that we have now had two and a half years of strong financial performance. This is essential for Eskom to raise the funding it needs to invest in South Africa's future," said Eskom Chief Executive Brian Dames.
Electricity sales increased by only 0.9% to 114 043 GWh in the six months to end-September, reflecting muted economic growth, labour unrest in sectors such as metals and mining, and the impact of higher tariffs. Revenue per kilowatt hour sold increased to 55.3 cents (44.6c), while operating costs rose to 38.2 cents (30.6 cents).
Primary energy costs increased by 26%, with approximately half of this attributable to higher coal costs and a further third of the increase reflecting Eskom's purchases of electricity from independent power producers. Eskom signed up 803 MW of capacity from IPPs and municipal generators in the six months. "We are committed to facilitating the entry of IPPs into South Africa's electricity market and we look forward to welcoming more new players into the market in the next few years," Dames said.
Dames highlighted the priority Eskom places on the safety of its employees, contractors and members of the public. A team has been appointed and extensive action has already been taken to improve the safety performance.
Since 2005, Eskom has spent R141.5bn on its build programme, which has so far added 5 381 MW of generation capacity to the national grid, as well as, 3 531 km of transmission network and 17 920 sub-station transformers. A R300bn funding plan is in place for the new build programme, which will be completed in 2018/19, of which more than 74% has now been secured. Eskom's debt stood at R178bn at end-September and is expected to increase to close to R400bn to complete the committed build programme.
The surpluses earned are thus necessary to enable Eskom to meet debt and interest commitments into the future. Eskom had, however, warned earlier that the schedule was at risk at the first of its new large coal-fired power stations, Medupi, because of concerns about the performance of certain of the contractors.
Eskom said today that Hitachi, which is building the boilers at Medupi, has committed to a date which will enable the first unit of Medupi to deliver first power to the grid only in May 2013. The target date for the unit had been the end of 2012. "Hitachi has put remedial measures in place to mitigate the risk of delays. We are monitoring their performance closely," said Eskom's Finance Director
Paul O Flaherty. O'Flaherty noted that Eskom's return on assets had risen slightly to 3.7% (3.6%) but would have to be significantly higher. "Our objective is to maintain an investment grade credit rating, preferably on a stand-alone basis, in order to ensure we can access local and global credit markets at attractive rates," O Flaherty said.
The embedded derivative liability at end-September was just under R6bn. Discussions continue with relevant stakeholders, including government, to find a solution regarding the remaining commodity-linked supply agreement which Eskom has with BHP Billiton.
Eskom also provided an update on the state of the power system, outlining the challenges it faces in balancing supply and demand while also carrying out essential maintenance during the summer season. "We are concerned about this summer," Dames said.
"The system is very tight. We have been making increased use of our open cycle gas turbines (OCGTs), and we are trying to find the space to catch up on the maintenance backlog and execute the planned maintenance programme, in order to ensure a reliable electricity system," Dames said. "We urge all South Africans to partner with us to save electricity and help us keep the lights on."
Eskom announced today that Unit 4 of the Duvha power station, which was damaged in the course of a statutory turbine overspeed test in February, was expected to be back in service in mid-2012. The insurers have now agreed to settle the claim and the investigation into the incident has been completed.
The investigation, by a team which included independent experts appointed by the insurers, pointed to the root cause of the incident as being a modification under taken by the power station in 2004 on the electro-hydraulic governor controller (known as the droop controller), while the direct cause of the incident is attributed to an operating error, in that the operator did not follow the set procedure while undertaking the test. Eskom is taking comprehensive action to address the findings of the report.
Today's results also include an update on Eskom's black economic empowerment spending, which totalled R31.8bn during the six months (65.8% of attributable spending). In addition, since the inception of the electrification programme in 1991, more than four million homes and more than 12 000 grid schools and clinics have been electrified. In the first six months of the 2011 financial year, more than 41 000 homes were electrified. More than 25 000 individuals are currently working on site at Eskom's new build project sites, of whom more than 10 000 are employed from the local districts. Of the major new build contracts awarded in the period, 78.4% was local content.
Statement issued by Eskom, November 23 2011
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