Eskom reports profit surge

Eskom has reported a net profit of R7.1 billion for the year ended March 2014, up from R5.2 billion in the previous year.

However, it noted that its earnings were significantly less than the R12.2 billion reported for the six months ended 30 September 2013.

The utility pointed to a R2.1 billion gain on derivatives related to negotiated pricing agreements and changed in the rand-dollar exchange rate.

“The surplus will be reinvested in the company in full to support its capacity expansion programme and to service debt,” Eskom said.

Eskom pointed out that its revenues and profits are higher in winter due to greater sales volumes, seasonal tariff adjustments and lower maintenance costs.

Revenue for the year ended March 2014 increased to R139.5 billion from R128.8 billion in the previous year, reflecting the impact of the 8% tariff increase and the flat demand for electricity (0.6% growth compared to the previous year).

The increase in revenue was offset by escalating primary energy costs, especially on open-cycle gas turbines (OCGTs), and an increase in maintenance costs.

This translated into revenue per kilowatt hour of 62.8c (2013: 58.5c), while costs per kWh in Eskom’s electricity business were 59.7c (2013: 54.2c).

Primary energy costs have increased significantly by 14.2% to 32.0c/kWh.  Given the tight reserve margin, the more expensive OCGT stations were operated far above previous load factors to ensure continuity of supply, the energy group said.

Eskom said its R300 billion funding plan is progressing well, with 90.5% of funding secured.

Downgrade

Standard & Poor’s recently downgraded Eskom’s credit rating and placed it on CreditWatch with potential negative implications, while Fitch Ratings revised Eskom’s outlook to “negative”.

Eskom said it is currently engaging Government to address the company’s capital structure.

“Eskom’s financial sustainability is under pressure but we have investigated alternative funding, including possible equity and quasi-equity, in response. We have applied to NERSA for the RCA adjustment, and we have launched a business productivity programme to reduce cost, increase productivity and enhance efficiencies,” said finance director, Tsholofelo Molefe.

Medupi

The delivery of Medupi Unit 6 (794MW) remains a key focus area and the first power to the grid date is scheduled for the second half of 2014, with commercial operation (full load) following approximately six months thereafter., Eskom said.

Kusile power station’s Unit 6 (800MW) is due to be synchronised in the second half of 2015; similarly the first unit of the Ingula pumped-storage scheme (333MW) in KwaZulu-Natal is due for synchronisation in the second half of 2015.

Power emergency

Eskom declared four power system emergencies during the year. On 6 March 2014, after having declared an emergency, Eskom had no choice but to implement load shedding for the first time since 2008.

“This was a painful yet necessary decision to protect the power system from a total blackout. A total blackout would have significant consequences for the South African economy,” the group said.

It said that the system continues to remain tight and vulnerable throughout winter, until a substantial part of the capacity expansion programme delivers new capacity.

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Eskom reports profit surge