The spike in primary energy costs, mainly coal and diesel, has put a massive dent in Eskom’s bottom line, the utility revealed in its annual results on Thursday.
However, with the appointment of former AngloGold Ashanti CEO Bobby Godsell as new chairperson the utility is concentrating its efforts on a stabilisation strategy it hopes will restore investor and public confidence.
Profits before tax for the Eskom group dropped to a mere R1,3-billion, according to its annual report, down from last year’s R9,4-billion.
Expenditure on diesel and coal are the chief reasons for the profit dive, chief executive Jacob Maroga told the media.
Primary energy costs, accounting for 46% of Eskom’s running costs, have risen by R5-billion since last year, totalling R18-billion.
Despite the pummelling, the utility has suffered nowhere near the R1-billion loss it predicted earlier this year when it applied to the National Energy Regulator of South Africa for a tariff increase.
Eskom’s disastrous start to this year resulted in the shut-down of the mining industry in January, aimed at staving off the wholesale failure of the national electricity grid.
Low reserves meant that the ageing Eskom plant was overtaxed, causing explosions at two substations this year.
As a result, the utility has to run its peaking power stations more often in a bid to keep the country’s lights on, said Maroga.
The generation plants use open-cycle gas turbines and are, Eskom admits, 30 times more expensive to run than normal coal base-load stations. Diesel is used as fuel and in recent months the price has risen sharply.
Maroga denied reports that the company let its coal contracts with established suppliers fall away in favour of smaller, less experienced and less efficient empowerment suppliers, depleting stockpiles.
He said that because of the lower reserve margins and the need to run base-load stations more intensively, tied collieries that supply Eskom power stations with coal have used more than the volumes contracted for.
As a result the utility has had to source 21% of its coal supplies on the more expensive spot market.
Nevertheless, Eskom has increased its stockpiles to 23 days, with 37-million tons of coal already contracted for.
Eskom has undertaken an ambitious R300-billion capital expenditure plan over the next five years to bring new power stations on line, recommission mothballed stations and improve transmission networks.
The company will recover some of its financial losses through the tariff increase, a R60-billion government loan and R150-million in borrowings.
On June 18 the regulator granted Eskom a 27,5% tariff increase while allowing for further increases of up to 25% over the next three years, if the current economic climate prevails. This could see electricity prices for consumers more than double.
It would not allow the utility to recover primary energy costs retrospectively through tariff increases, allowing this to be done only through future price regimes.
As a result Eskom could not recover R7,5-billion already spent on fuel and coal.
Public Enterprises Minister Alec Erwin told the results briefing the structure of the government loan is close to being finalised and will be announced after discussions between his department, Treasury and Eskom.
Erwin acknowledged government’s contribution to the power crisis, saying ”we should have pushed the build programme sooner”.
Maroga said that there is a good possibility the country could ”go through winter without load-shedding”, but stressed that a national energy savings target of 10% must be achieved.
