Eskom woes worsen as group profits drop 24% - CNBC Africa

Eskom woes worsen as group profits drop 24%

Southern Africa

by Trust Matsilele 0

Eskom woes worsen as group profits climbs down 24 per cent. PHOTOS: Eskom

The troubled power provider saw a decline of 24 per cent from the same comparable period last year.  

Eskom said it expected even the narrow profits to further shrink on full year results.

(READ MORE: Eskom facing liquidity crisis as privatisation looms)

“While Eskom reported a profit of 9.3 billion in the first half of its financial year, these profits are expected to decline to 0.5 billion rand for the full financial year,” said the group.

“This is because, traditionally revenue in the winter is much higher than during the summer due to time-of-use tariffs to key industrial customers and there is less maintenance performed on Eskom power plants.”

The winter season contributes to the profitability of the first half of the year, while tariffs are lower in summer and maintenance activities increase, resulting in higher costs.

The group revenue in the first half of the 2014/15 financial year increased 5.4 per cent to 81.9 billion rand comparable to 77.7 billion rand in 2013.

“This reflects the impact of the eight per cent tariff increase offset by a contraction in demand for electricity,” added the group.

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

Eskom chief executive Tshediso Matona said the power utility will work to achieve financial sustainability.

“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.”

Eskom’s financial health has deteriorated over the past few years as a result 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.

Eskom finance director, Tsholofelo Molefe, said the power utility was working with government departments in finding solutions to the group’s woes.

(READ MOREMoody’s downgrades Eskom’s senior unsecured ratings)

“We are working with an Inter-ministerial Committee comprised of the Ministers of Public Enterprises, Minister of Energy and the Minister of Finance to find sustainable solutions, and these efforts have yielded initial results, with the National Treasury announcing a support package for Eskom last month,” said Molefe.

“This package will support liquidity in the short-term, but in the long-term it remains absolutely imperative that the tariffs must reflect the cost to supply electricity.”