ESKOM NOW WELL ON ITS WAY TO FINANCIAL SUSTAINABILITY

Monday 27 June 2011: Eskom has posted a strong improvement in its financial performance for the year to 31 March 2011, increasing the surplus for reinvestment in its business to R8.4 billion, up from R3.6 billion a year ago.

This is the second consecutive profitable year, after Eskom sustained a loss of R9,7 billion in 2009, indicating that Eskom is well on the way to financial sustainability.

"Eskom is reinvesting all of the surplus to create new capacity," said the Minister of Public Enterprises Malusi Gigaba. "Eskom has done well, not only financially but also in terms of its core mandate of keeping the lights on, in a year in which South Africa hosted a successful FIFA Football World Cup."

Eskom reports today not only on its financial results but on its sustainable performance, adopting a ‘triple bottom line' approach which also measures its socio-economic and environmental and safety performance (see full annual report here - PDF).

Eskom supports the government's Economic Growth Path and has put plans in place to enhance its developmental contribution. Among the highlights of the financial year were that 79% of new build contracts placed in the financial year were local content, that Eskom has a pipeline of nearly 5 300 learners and is expanding its training with a focus on youth, the R41.9 billion spent on Broad Based Black Economic Empowerment and reaching the landmark of 4 million households electrified under the electrification programme since the early 1990s.

Profitability was strong in the first half of the financial year,  which includes the higher-tariff, high demand winter months when maintenance is low, but was lower in the second half of the year, as indicated at the time of the interim results in November. "Eskom's policy of transparency means that these results should be no surprise," said Eskom's Chief Executive Brian Dames, referring to the regular systems updates and interim results presentations.

Electricity sales at 224 446 GWh were 2,7% higher than in 2010, reflecting an improving national economy, although growth was lower than expected. Group revenue increased 28,6% to R91,4 billion, driven primarily by the tariff increase granted by NERSA from 1 April 2010.

Eskom's Finance Director Paul O'Flaherty said "Our R300 billion funding plan is well on track with approximately 71% of it secured. We are becoming a far more financially sustainable company as we move towards cost reflective tariffs. The net profits are important and must be seen in the light of the fact that we still have R230 billion of debt to raise, which we can do only if we earn sufficient profits to pay off the debt."

While Dames noted Eskom's improving financial health, he also listed the challenges and areas where further improvement was needed.

"Safety remains a major concern. There were 6 employee, 18 contractor and 43 public fatalities during the year, and this is unacceptable. In particular, vehicle accidents are a major concern,"

Operational challenges in the year ahead included the constrained power system as Eskom balances the need for planned maintenance on ageing plant with the demands of the growing economy. Some maintenance has had to be rescheduled to maintain the reserve margin, increasing operational risks.

The loss of one unit at Duvha power station, damaged in February this year, has taken 600MW of supply out of the grid. Repairs to the unit will take more than a year to complete.

Eskom's carbon footprint needs to be reduced. It is also working to improve its environmental performance.

Eskom is a major driver of the South African economy, estimated to account  for approximately 3% of South Africa's gross domestic product (GDP), and its business model balancesenvironmental objectives, in line with its aim to grow the economy and improve the quality of life of people in South Africa and the region.

Dames emphasised the role Eskom plays in enabling all South Africans to take part in the development of the country. It already awards more than 50% of its total expenditures to B-BBEE-compliant suppliers, and a total of R41,9 billion has been spent on Broad-based Black Economic Empowerment.

"Eskom is one of the largest employers and buyers in the country. The new build programme sources more than 50% of all content locally and recruits the majority of workers from local communities. South African skills are being developed as the programme's local content requirements kick-start whole new industries in this country.

"We have invested R7,5 billion in the national electrification programme since its inception in 1991. More than 4 million homes have been electrified, and we have brought electricity to some 400 clinics and more than 11 000 schools," Dames said.

Eskom's substantial training programme helps to supply skills to the broader economy. Its training budget of nearly R1 billion is 5,7% of the wage bill, well above international norms. Eskom currently trains some 5 000 people annually and plans to double this by 2015 with a focus on youth. It is also partnering with universities to develop engineering skills and to accelerate electrification, including in rural areas.

On the environmental side, Eskom improved its particulate emissions performance although it is still short of the targeted figure, stabilised its water use performance and entered into a strategic water research partnership with the Water Research Commission.  The recent World Bank loan included funding for Eskom's first wind and solar power plants as part of its focus on renewable energy sources. Eskom participated in the international climate change negotiations over the past two years, and will play a key role in this year's COP 17 discussions in Durban in December.

Operationally Eskom remains focused on keeping the lights on.   An improvement in coal stocks at the end of March at 41 days, up from 37 days at the end of March 2010 is an indication of operational progress.

Dames reiterated Eskom's resolve to avoid load shedding and its belief that this resolve would be severely tested, especially this year and next.

"We cannot do it on our own," he said, stressing the need for all electricity consumers to save 10% of their electricity use in a partnership with Eskom to meet the challenge.

Eskom initiated the 49M campaign to educate South Africans about the importance of saving electricity and to help create a culture of energy efficiency.

"As we have explained in our quarterly updates on the state of the system, the balance between supply and demand is going to remain tight until 2017, and particularly so for the remainder of this year and 2012.

There is still an urgent need for all consumers to use electricity wisely and to switch off appliances -- when they are not use."

Eskom is committed to facilitating the entry of Independent Power Producers (IPPs) and financial 2011 was the first year in South Africa's electricity market for IPPs. Eskom has signed power-purchase agreements for 373MW with power producers, including Sasol, Sappi, Ipsa and Tangent, and has contracted with municipal generators in Johannesburg and Tshwane to deliver power into the grid. 

Statement issued by Eskom, June 27 2011

Source: Eskom Annual Report, 2011

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