Eskom: Revenue up, profits down

The company's annual report, released on Wednesday afternoon, showed revenue has jumped from R115-billion for the financial year ended March 31 2012, to R129-billion in 2013. But rising costs took their toll on the company, which recorded a R5.2-billion profit for the year – far lower than the R13.2-billion recorded in the year prior.

Eskom chief executive Brian Dames said in the past financial year the company saw sound performance, but that it has been a tough year in many respects.

A point of emphasis in the annual report was the multi-year price determination as decided by the National Energy Regulator of South Africa in February this year which granted Eskom just half the tariff increase it applied for.

"That will entail fundamental change in how we think and what we do," Dames said.

In its integrated annual report, Eskom said the regulator's decision would result in a revenue shortfall of R225-billion over the next five years.

"While Eskom will strive to achieve additional efficiency, there is a need to reshape the business and also discuss alternative options with Eskom's shareholder."

The report said a number of implications are being considered.

These include areas of further efficiency, cost curtailments and reductions; alternative funding options available to Eskom; as well as policy and mandate implications for the power utility, which are to be discussed with the minister of public enterprises and paint a picture of an uncertain future.

"There is a need to ensure alignment with the shareholder on issues such as coal price regulation, the future role of integrated demand management, further government support, and Eskom's role in developing projects beyond Kusile power station," the report explained. 

Dames further added that Eskom had already been engaging with the shareholder on its mandate.

"We will not extend ourselves beyond what we have been allowed to do, not without clear agreement that we will recover it [the costs] or someone else will cover it … We are not doing any new projects, we simply don't have the funds, but we believe the country will have to invest."

The cost of coal has become a huge challenge for the state-owned enterprise. Primary energy costs had increased quite significantly, from R48-billion in 2012 to over R60-billion over the past financial year, with coal being the biggest contributor.

Debt in Eskom stands at R203-billion and over the next few years will increase to up to R400-billion, meaning the company may have to raise more debt.

Dames said Eskom has three big agendas: to re-engineer Eskom to respond to the tariff increases; to ensure the sustainability of its assets; and to see that new power generation capacity be built.

On Monday, Eskom announced that the first unit at Medupi, its mega power project in Limpopo, will not come online in December this year as promised, but will be pushed back to the second half of 2014.

He said that, for the past four years Eskom had been profitable, had a sound performance, had been stable and delivered predictable results for its customers – "and for Eskom making progress and that is satisfying".

He said the company has solved the funding for our committed projects and would see them through and had also made significant progress over management of coal at Eskom, and stocks are healthy.

He noted that Eskom had done well to make sure it kept the lights on. On the business side, there had been progress on many fronts and the focus remained on the sustainability of the generation fleet. 

Year-on-year electricity sales were 3.7% lower, Eskom said, reflective of an effective demand side programme (to save power), power buy-backs and slower economic growth. In the past financial year Eskom spent R60-billion on capital, more than it has ever done, according to Dames.

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