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Aug 27, 2009

Eskom mulls ways to close R80bn funding shortfall

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Eskom CEO Jacob Maroga and chairperson Bobby Godsell discuss the utility's financial sustainability. (27/08/2009) Cameraperson: Nicholas Boyd Video editing by: Darlene Creamer
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Eskom has said that it is determined to achieve ‘break-even’ at an operating level in the 2009/10 financial year, and CEO Jacob Maroga emphasised that ensuring a “sustainable funding solution” for the future was imperative.

Eskom, which posted a R9,7-billion loss for the year ended March 2009, expects an R80-billion funding shortfall for its expansion plans.

Maroga added that the utility would have a funding model finalised by the end of September.

“I am confident that the country will find an integrated funding solution,” he stressed.

Eskom chairperson Bobby Godsell said that the most important issue was to get clarity from South Africa on what an acceptable electricity tariff would be - one that would allow Eskom, co-generating industries, and independent power producers to get a fair return on power produced.

Once this issue was settled, the issue of equity and debt required to assist capital expenditure programmes could be clarified.

Looking toward the new build programme, which Eskom was undertaking to ensure it would have enough power to supply the anticipated future demand, Maroga said that the utility’s five-year capital expansion programme stood at R385-billion, primarily on already committed projects.

In the 2008/9 financial year, Eskom spent R47,09-billion on capital expenditure, and the largest projects being funded were the Medupi coal-fired power station, the Kusile coal-fired power station, and the Ingula pumped-storage project.

“Funding this programme at a time of global crisis is a challenge,” said Godsell.

He explained that if Eskom assumed that electricity tariffs increased at the same rate as the 31,3% recently granted for the next two years, then the utility would experience a shortfall of R80-billion for the build programme.

Godsell further said that Eskom was working “urgently” with both government and the National Energy Regulator of South Africa to close this funding gap, and “is confident that this can be done”.

However, if this gap could not be closed, the utility would have to introduce delays in some parts of the build programme.

Eskom also outlined targeted reductions for the 2009/10 year, and hoped to save R6,2-billion on primary energy costs; cut R7,1-billion in operating expenditure; as well as save R8,7-billion by deferring capital expenditure.

In the year under review, Eskom spent R25,3-billion on primary energy costs – a 38% increase from R18,3-billion in the prior year. Eskom also increased operating expenses by 32% in the 2008/9 financial year, to R29,3-billion. That said, revenues also increased by 21%, reflecting the increases in electricity tariffs, and the company’s turnover was R53,8-billion, compared with R44,4-billion in the previous year.

Eskom has already previously announced five projects that would be delayed, most being renewable energy projects.

With regard to projects that have been delayed, Maroga stated once again that “everything relies on finding a sustainable funding model, and next month we will have more clarity on that”.

Maroga said that Eskom made a conscious decision to “keep the lights on” and prioritised this, knowing that it would mean the utility incurring a loss at the bottom line.

He explained that if moneymaking were the priority “we could simply shut down those who are most expensive”.

Edited by: Mariaan Webb
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