Eskom Profits Drop, Blames Low Demand On Labour Unrest

Eskom

VENTURES AFRICA – Releasing first half results on Tuesday, Eskom revealed a drop in after-tax profits caused by slow economic growth and a drop in demand due to the on-going work force unrest.

The power provider revealed net profits for H1 to end September of 12.6 billion rand ($1.4 billion) down from last year’s equivalent figure of 12.8 billion rand ($1.4 billion).

While the previous year’s full year net profits weighed in at 13.2 billion rand ($1.4 billion), the company revealed expectations that the 2012 full year figures would not be as successful due to necessary upgrades to its infrastructure, with Eskom projecting it would: “breakeven at best during the second half, when Eskom must take advantage of lower summer demand to do higher levels of maintenance on its power stations.”

Revenue increased substantially this year on H1 figures for 2011, with the provider revealing 73.4 billion rand ($ 8.3 billion) in profits in the six months to September, up from the corresponding period of 2011 when revenue was only 63 billion rand ($7.1 billion). However, Eskom did concede that the growth in revenue was “driven mainly by the 16 percent tariff increase which the National Energy Regulator of South Africa (Nersa) granted Eskom earlier this year.”

As South Africa’s major power provider – which is estimated to supply 95 percent of the country’s power – Eskom also noted that it had experienced a 2.9 per cent drop in demand for power. This it blamed on the on-going labour unrest that has hit multiple industry sectors across the country, resulting in reduced demand from what Eskom called “key customers”.

This drop in demand was also compounded by higher operating costs in the six months to September, costs rising to 47 cents ($0.053) from 38.2 cents ($4.313) in H1 of 2011. Meanwhile, primary energy costs also experienced an increase of 17.6 percent to 22.5 cents per kilowatt hour (c/kWh) ($ 0.025), up from 2011 first half figures of 19.2 c/kWh ($0.021).

Eskom in October submitted an application to the National Energy Regulator for permission to raise energy tariffs over the next five years in order to finance new infrastructure and the upgrading of current equipment. Under the proposed tariff system – which would take effect as of 1st April 2013 – energy prices would be raised by 16 percent annually over a five year period. Eskom insists this would not only cover the costs of improving the South African energy grid, but 3 percent of the increased tariffs would be dedicated to facilitating the entry on to the market of independent power providers.