Eskom posts big FY loss, says power supply tight

Eskom Chief Executive Jacob Maroga

South Africa’s state-owned utility Eskom on Thursday reported one of the biggest full-year losses in the company’s history and warned power supply was still tight despite a decline in usage.

Chief Executive Jacob Maroga said the global recession had given his firm some “breathing space”, with demand down 4.2 percent, but stressed that the utility’s power expansion plans need to continue to satisfy South Africa’s growing power needs.

Eskom has said it plans to spend 385 billion rand to expand power supply over five years.

“There is still a risk in the (power) system, but we believe we should be able to deal with 2010 comfortably,” Maroga said.

Eskom, which provides 95 percent of the country’s power, is battling to meet demand in Africa’s biggest economy and a major producer of gold and platinum.

Eskom plunged deeper into the red, reporting a full-year loss of 9.7 billion rand for the 2009 financial year to the end of March, hit by higher coal, maintenance and labour costs, against a revised loss of 168 million rand for the previous year.

The global economic crisis badly hit the utility’s ability to borrow, and Eskom was forced to buy coal on more expansive short-term contracts to boost supply last year when the national grid nearly collapsed, forcing mines to shut.

Its loss could further impact the company’s rating and its ability to source external funding.

Maroga said forecasts of low demand would not affect current expansion projects because Eskom’s spare capacity was still far below its 15 percent target. Slower growth may only affect the timing of some projects not yet commissioned.

He said Eskom had secured funding for this year’s expansion plans, after deferring projects worth 7 billion rand.

Nonetheless, the utility faces a total shortfall of 80 billion rand for the 2011 and 2012 financial years, assuming it secures a tariff increase of around 30 percent each year.

Eskom said the utility would try to stick to its three main projects — two coal-fired power stations and a hydro scheme, due to start generating power between 2013 and 2017 — because of their importance in securing the country’s power supply.

FUNDING GAP

Eskom Chairman Bobby Godsell said, however, that it may have no other choice than deferring some plans.

“If we are unable to close that (80 billion rand) gap, we have no option but to delay that schedule,” he said.

Eskom said it planned to break even in the current financial year, owing to cost cuts of up to 22 billion rand.

The utility said it would rely on an increase in tariffs, borrowings and government loans to pay for the expansion programme, but has not yet managed to secure all funds needed.

Eskom was granted a 31.3 percent increase in electricity tariffs in June to help build new power stations, but the regulator said Eskom might need increases of up to 60 percent more to cover its funding shortfall.

The power firm is expected to apply for tariff increases for the next two years by next month, when a funding model for the utility is also expected to be put in place.

Godsell said an assumption of a 30 percent increase for each of the coming years was “very conservative”. The utility provoked public anger when it applied for a 34 percent tariff increase, which critics said would fuel inflation.

South Africa enjoys one of the world’s cheapest power costs, with the price per kilowatt hour averaging 3 U.S. cents, compared with between 8-9 U.S. cents in OECD countries.

Source: af.reuters.com