Should Eskom be making a profit when it is still in dire straits? - CNBC Africa

Should Eskom be making a profit when it is still in dire straits?

Southern Africa

by Thabile Manala 0

Eskom reports that staff will not be receiving bonuses this year as profits fell by 50 per cent. PHOTO:www.timeslive.co.za

Eskom reports that staff will not be receiving bonuses this year as profits fell by 50 per cent from 7.1 billion to 3.6 billion rand.

The utility said it managed to supply power 96 per cent of the time although Brian Molefe, acting CEO of Eskom said balancing supply and demand was a challenge.

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South Africa's Minister of Public Enterprises, Lynne Brown, has expressed concerns that Eskom is not generating a big enough profit. On the backdrop of this concern, David Lipschitz, energy analyst from My Power Station, said Eskom is a massive organisation that is investing “hundreds of billions of rands” in its infrastructure programme".

He offered that, “As such one wouldn’t expect it to make a profit for the first ten to 20, even 25 years. When one invests big amounts of capital, one expects to have positive cash-flow after the first few years but also expects to be making losses for a decade or two.”

According to Lipschitz, the minister’s sentiment on Eskom accumulating a sizeable profit is “not a big deal”. In fact, if Eskom were to rake in huge amounts of profit, it would be because “they are overcharging us, and they are wasting money and not putting in money where it needs to be, “ he said.

So by deduction Lipschitz said what Eskom would be asking is that consumers pre-fund its capital build. “So one would expect that in that pre-funding their cash-flow and capital would be growing very fast in order to fund the outlay as it grows up to R2.3 trillion over the next 20 to 30 years,” explained Lipschitz.

He further made the recommendation that improving Eskom’s infrastructure would require a strong balance sheet and that doesn’t demand immediate huge profits. “That profitability must stay inside Eskom to fund the programme, “advised Lipschitz.

When it comes to energy utility suppliers, the issue of monopoly is also a contentious issue, where Lipschitz weighed in saying that, “Competition is important. The 1998 white paper on energy and the 2003 white paper on renewable energy called for 30 per cent of the grid in South Africa to be in private ownership by 2010 which was already five year ago.”

The programme being run by Lipschitz suggests that Eskom should be the Independent System Market Operator (ISMO) which means Eskom should own the infrastructure grid and eventually own its own power station.

This would allow houses, small businesses, independent power producers (IPP’s) and so on to come into the grid and sell electricity across the grid and potentially find their own customers across the grid. “So every single unit that gets sold across the national grid, Eskom will make money from the seller and the buyer.”

In light of this proposal, Lipschitz said the government had this ISMO board for a couple of years and they withdrew it. “I think that’s a big mistake.”

 

 

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