Eskom reported a profit of R9.3 billion for their first-half results ending 30 September 2014. This is a reduction of 24% on the same period last year. They expect the yearly profit number to decline to R0.5 billion. “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,” says Eskom Chief Executive Tshediso Matona.
Winter revenue increase
The winter months clearly produce much more revenue than the summer; the tariffs are higher in winter and there is more demand. In addition costs are greater in summer as maintenance activities increase when demand is down.
Eskom Finance Director, Tsholofelo Molefe, said: “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.”
The revenue for the first half of the 2014 financial year however increased to R81.9 billion (2013: R77.7 billion). Although there was a positive impact from the 8% tariff increase, this was offset by a contraction in demand for electricity. In addition Eskom has increased its purchasing from independent power producers to ensure that demand can be met. Increases in coal costs and the continued use of open-cycle gas turbines has further offset revenue growth.
“While electricity revenue increased 5.9% to R81.9 billion in the period under review, sales volumes declined by 1.4% following the widespread mining industry strikes and the closure of the Bayside aluminium smelter,” says Molefe.
Eskom’s proposed solution
The executive team will work with the Chief Executive over the next few months during which time they will finalise Eskom’s strategy and objectives for the medium to long-term, taking into account current constraints and opportunities. “I will, before the end of this financial year, present to the Eskom Board of Directors a top structure, including an Executive Committee that will be smaller and more agile. The structure will be designed such that it focuses on operational effectiveness, efficiency, our core business and key priorities that are aligned with shareholder expectations,” said Mr. Matona.