South African power utility Eskom announced a pre-tax profit of R6,8-billion for the financial year ending on March 31 2006 from R7,6-billion for the 15-month period ended March 31 2005.
Commenting on the results for the financial year ended March 31 2006, Eskom’s chief executive Thulani Gcabashe said: “Eskom’s financial results for 2006 reflect a strong performance across key areas in the business. The year was, however, characterised by a significant number of challenges, particularly in the generation and transmission of electricity in the Cape.
Valuable lessons have been learned, and our primary focus is to continue refurbishing, maintaining, and producing sufficient new capacity to meet South Africa’s increasing demand for electricity.”
“Eskom’s short-term challenge is that, owing to rapid economic growth, there is only marginal spare capacity in the system, and this, combined with some logistical challenges in the transmission infrastructure, makes it difficult to cope with any abnormal events,” Gcabashe said.
According to Gcabashe, the group’s financial performance during the year was encouraging, considering a modest 0,8% sales growth, rising primary energy costs, and increased maintenance costs associated with plant in a mid-life phase.
Group pre-tax profit, including the favourable impact of R1,3-billion arising from embedded derivative gains, was R6,8-billion compared to R7,6-billion for the 15-month period ended March 31 2005.
Looking to the future, and in accordance with the Asgisa target of 6% economic growth per annum, Eskom said they had committed to an expansion programme that would more than double capacity over 20 years. To fund this, Eskom would contribute at least 50% from operational cash flow, with the balance coming from borrowings.
“We are confident that the R97-billion capital expenditure programme, confirmed in Parliament recently by Public Enterprises Minister Alec Erwin, will be able to satisfy the already high — and rising — demand for electricity associated with strong economic growth,” said Gcabashe.
“In the Cape, we have a special challenge in that power transmission from the Highveld flows through a bottleneck, and as a result, we are strengthening the transmission grid as a matter of urgency.
Gcabashe said rapid recovery plans were in place in the generation, transmission, and distribution networks to mitigate power failures should they occur.
“We continue to work closely with customers and consumers in the region to manage demand, resulting in electricity savings 17% ahead of target.”
“We recognise our responsibility to deliver reliable and affordable power on a sustainable basis. As our infrastructure strengthens, we believe that we will be able to ensure continuity of supply and continue to function as South Africa’s energy engine,” Gcabashe stated.
He added that effective cost control and good working capital management enabled Eskom to maintain its competitive position as the world’s lowest cost producer of electricity.
The introduction of a three-year tariff pricing model agreed by the National Electricity Regulator will encourage price stability, and this, in turn, will contribute to improved forward planning.
A return on assets of 9,2% and the generation of almost R12-billion cash from operations, combined with a debt-to-equity ratio of 0,18, were reported by the group to have added to their already strong balance sheet and superior credit rating.
The group said in a statement further evidence of this was the excellent response to the initial fund-raising programme comprising a €500-million, seven-year Eurobond in February 2006 and a domestic R65-billion multi-term note programme which was registered in March 2006. A R2,5-billion local bond maturing in 2033 (the longest registered bond in South Africa) was issued in March 2006 as part of this programme.
“This is, indeed, a strong platform for growth,” said Gcabashe.
On the power capacity front the group said medium-term capacity expansion plans would see continued measures to increase power generation capacity and strengthen the national power transmission grid.
Two gas turbine power stations, at Atlantis and Mossel Bay, were reported to be coming on stream before the winter of 2007 and will provide 1 022MW.
Additional units from the three mothballed power stations being returned to service, Camden, Grootvlei, and Komati, will provide 3 600MW of capacity when fully operational.
The first unit from the Camden power station is already in commercial operation.
Project planning for a new power plant was reported to be well advanced. The projects includes a 765kV transmission line running from Standerton to Cape Town, open cycle gas turbines at Atlantis and at Mossel Bay, a pumped storage station in the Drakensberg escarpment, and a base load coal power station, near Lephalale in Limpopo. Further coal, gas, and nuclear options were being evaluated for board decision in the 2007 financial year, the group said.
“Our immediate challenge is to balance electricity demand with the available supply until the capacity improvement programme gains critical mass. We will have to pay special attention to operational performance, infrastructural investment, pricing structures, and customer service. We are up to the challenge,” said Gcabashe.
“Eskom has an experienced and committed workforce, and this, together with a strong financial position, creates the platform that makes us confident that we will play our part in powering South Africa’s development,” Gcabashe said. ‒ I-Net Bridge