Eskom on its 2011/12 Annual Report

PMG 18 September 2012.

Date of Meeting:

18 Sep 2012

Chairperson:

Mr P Maluleka (ANC)

Eskom Annual Report 2011/12 [not yet available on website]

Summary:

Eskom was currently engaging with the new management of BHP Billiton, the multi-national aluminium smelter, to renegotiate the contract which had been entered into during the 1990s, and which had resulted in it being provided electricity at a tariff below Eskom’s cost of production. This assurance was given to the Committee, after several Members had raised questions about the contract, and the prominence given to the issue in the media over the lack of transparency on the matter.

Eskom’s overview of its current situation was that it was in a fundamentally better position than it had been before. A new strategy had been put in place in 2010 with the intention of shifting its performance levels and putting in place the building blocks for future growth. A key focus had been on ensuring “we keep the lights on”, and the organisation had worked day and night to achieve this. The funding problems of Eskom had been overcome, not only from a revenue point of view, but also with regard to significant cost savings, and funding for future projects had been secured. The labour problems at Medupi power station had been resolved, and the new built programme was progressing favourably. Eskom was fulfilling its developmental role through its skills training, by physically creating jobs with its infrastructure projects and by providing business opportunities for South African companies. The operations side of the business had been turned around, with R4bn in cost savings being realised. Manpower numbers were being increased, particularly in its distribution arm. There had been concerns about the way in which Eskom motivated its staff, but it had been crucial to address this aspect, as staff were required to work at all hours to ensure electricity supplies were maintained.

During the financial year, 155 213 homes had been electrified, bringing the total since the inception of the electrification programme in 1991, to over 4 200 000.  This meant 83% of households were electrified. Although electricity sales had increased by only 0,2%, the increased tariff had resulted in revenue growing from R91.4bn in 2010-11, to R114.7bn in 2011-12. Since March, there had actually been a decline in sales, reflecting the impact which the world recession was having on the South African economy. Profit amounted to R13.248bn, giving a 3,7% return on average total assets. It cost Eskom 41,3c to produce a kWh unit of electricity, and its revenue per unit was 50,3c. Its capital expenditure for the year was R58.815bn, and its gross debt at the end of the period was R182.567bn. This level of debt made it essential for Eskom to remain viable, as borrowings over the next five years would increase the debt to over R300bn, with a repayment period stretching to 2040.

Members asked if Eskom had the capacity and experience to meet its programme deadlines. They criticised the decision to spend R36m on parties aimed at motivating Eskom employees, and proposed that a cap should be put on the additional charges which municipalities could impose, over and above the Eskom tariff. Safety issues in informal settlements were discussed, and clarity was sought on progress in implementing rural electrification. Other questions revolved around skills training and gender equity, the effect of labour problems at independent contractors on Eskom’s operations, and the role of independent power producers in Eskom’s future plans…

http://www.pmg.org.za/report/20120918-eskom-its-201112-annual-report (need to log in)

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