Eskom records R9.3bn in profit

(Image adapted from the Eskom website)

"While Eskom reported a profit of R9.3bn in the first half of its financial year, these profits are expected to decline to R500m for the full financial year.

"This is because traditionally, revenue in winter is much higher than during summer due to time-of-use tariffs to key industrial customers and there is less maintenance performed on Eskom power plants, which contributes to the profitability of the first half of the year. Tariffs are lower in summer and maintenance activities increase, resulting in higher costs," said the power utility.

Group revenue in the first half of the 2014/15 financial year increased by 5.4% to R81.9bn (2013: R77.7bn). This reflects the impact of the 8% tariff increase (granted by the National Energy Regulator of SA) offset by a contraction in demand for electricity.

Revenue growth has been offset by escalating primary energy costs due to increased purchases from independent power producers (IPPs) to help balance the demand and supply of electricity, increases in coal costs and the continued use of open-cycle gas turbines (OCGTs).

"We will work to achieve financial and operational sustainability in a balanced manner through internal efficiencies, the migration to cost-reflective tariffs through regulatory tariff processes, deferrals or scope changes on projects and government support," said Eskom Chief Executive Officer Tshediso Matona.

Stabilising Eskom

The utility's financial health has deteriorated over the past few years because of substantial cost increases, lower sales and the lack of cost-reflective tariffs at a time when it has to invest heavily in building new capacity and power lines for the country.

Revenue per kilowatt-hour sold increased to 74c compared to 69c in the same period in the previous year, while operating costs rose to 62c from 55c.

The R200bn funding plan for the remainder of the third Multi-year Price Determination (MYPD3) from 1 April 2014 to 31 March 2018 is progressing well, with 32.8% of funding secured (R66bn), noted the utility.

On 13 September 2014, Cabinet approved a financial package in a bid to support Eskom's liquidity and its financial sustainability and to ensure that the energy security of the country is maintained in an effort to aid Gross Domestic Product (GDP) growth.

Last month, Finance Minister Nhlanhla Nene announced that equity funding of at least R20bn would be provided to Eskom. The package is seen as a first, yet robust, step on the road to ultimate financial sustainability.

Total municipal arrear debt increased to R4bn (March 2014: R2.6bn). The continuing increase in arrear debt poses significant cash flow concerns.

Eskom's power system continues to be significantly constrained. Notwithstanding that, apart from three load-shedding events over three evening peaks in June 2014, electricity demand was met during the six months to 30 September 2014.

Demand was adequately met during the day and although evening peaks were tight, sufficient generation capacity and emergency reserves were available to meet the demand.

Progress made at Medupi

Steady progress is being made in relation to the Medupi power station Unit 6, first synchronisation, with all efforts being made to meet the target date of 24 December 2014. However, some commissioning risks still remain, which may delay synchronisation by several days beyond this date.

"The risks are receiving management's full attention. Full commercial operation of the unit is expected approximately six months later. Additional resources were mobilised to Unit 6 by both the boiler and control and instrumentation (C&I) contractors to mitigate any resource-driven delays.

"Additional shifts were introduced 24 hours a day, seven days a week, in order to accelerate progress on site. Eskom continues to work with contractors to resolve any issues that could affect the schedule," said the power parastatal.

At Ingula, since the tragic accident on 31 October 2013, progress has been significantly impacted, resulting in limited progress for a period of almost 12 months.

The section 54 work stoppage was lifted completely in September 2014, allowing underground works to resume. The projected forecast date for synchronisation of the first unit is November 2015, with the remaining three units following at approximately two-monthly intervals after that.

Eskom acknowledged the role that IPPs must play in the South African electricity market. It said it remained committed to facilitating their entry into the market. Total capacity of 4 280 MW has been contracted with IPPs as at 30 September 2014.

Duvha investigation complete

The investigation on the Duvha unit 3 over-pressurisation incident, which took place on 30 March 2014, has been concluded.

The combination of several issues created the build-up of the over-pressurisation incident, Eskom said.

"We have a mitigation strategy in place and there will be significant learning to ensure that a similar incident does not occur in future.

"Eskom's mandate is to provide electricity and to help stimulate the South African economy, thereby improving the quality of life of the people of this country and the region.

"To achieve that, what we have to focus on right now is the sustainability of our finances, operations, and completion our capacity expansion programme," said Matona.