Price increases push profit for Eskom, but not enough
But the parastatal remains in a debt spiral, which means the revenue cannot fund new projects.
In the financial year ended March this year, Eskom recorded revenue of R71.2-billion from R54.2-billion previously. It made a net profit of R3.6-billion compared to a R9.6-billion loss last year. This was due to a slight increase in power usage, but mainly to the 25% tariff increase implemented this year.
Chairman Mpho Makwana said while Eskom was profitable, it was important that a cash surplus be generated to fund ongoing and new projects, which was not the case.
He said: "We are starting to show a financial turnaround, but we still face some challenges in the year to come. A clear recovery strategy is needed with a realistic timeline. What is encouraging is that we will be keeping the lights on while on our way towards sustainable security of supply."
Newly appointed financial director Paul O'Flaherty said all the company's profit was going to service interest on debt taken for its multi-billion capital programme.
He said the company's profit would have been worse had it not been for a renegotiated derivative contract with BHP Billiton's Mozal Aluminium smelter in Mozambique.
The embedded derivative gain on the new contract signed in February was R2.3-billion compared to a R9.5-billion loss from the previous contract, with BHP paying less than half the cost to deliver electricity.
"The contracts on the [BHP Billiton smelters] Bayside, Hillside and [Anglo American's zinc mine] Scorpion contracts need to be renegotiated," O'Flaherty said.
During the next seven years Eskom will spend around R693-billion in capital expenditure. This money will come from the 25% annual tariff increases up to 2015 when increases will slow to 6% for the following two years.
Makwana said Eskom has intensified its cost-saving measures. "We've committed to saving R20-billion over seven years," he said.
O'Flaherty said despite loans from the government, The World Bank, The African Development Bank and other institutions, Eskom would still have a shortfall of R190-billion by 2017. More than R140-billion of that was for projects and technologies that had not yet been defined.
This leaves a shortfall of R50-billion, and applications for alternative funding solutions have been sent for approval. - Additional reporting by Reuters and I-Net Bridge