14 July 2006
Results for financial year ended 31 March 2006
Eskom's strong financial performance further strengthened the balance sheet,
thereby providing a solid financial platform to fund the five-year R97 billion
capital investment programme. The investment programme has been designed to
meet the electricity needs generated by South Africa's rapid economic
growth.
Commenting on the results for the financial year ended 31 March 2006,
Eskom's Chief Executive Thulani Gcabashe said, "Eskom's financial results for
2006 reflect a strong performance across key areas in the business. The year
was, however, characterised by a significant number of challenges particularly
in the generation and transmission of electricity in the Cape. Valuable lessons
have been learned and our primary focus is to continue refurbishing,
maintaining and producing sufficient new capacity to meet South Africa's
increasing demand for electricity."
"Eskom's short-term challenge is that, owing to rapid economic growth, there
is only marginal spare capacity in the system and this combined with some
logistical challenges in the transmission infrastructure, makes it difficult to
cope with any abnormal events."
"In the Cape, we have a special challenge in that power transmission from
the Highveld flows through a bottleneck and as a result, we are strengthening
the transmission grid as a matter of urgency. Rapid recovery plans are in place
in the generation, transmission, and distribution networks to mitigate outages,
should they occur. We continue to work closely with customers and consumers in
the region to manage demand, resulting in electricity savings 17% ahead of
target."
"We recognise our responsibility to deliver reliable and affordable power on
a sustainable basis. As our infrastructure strengthens, we believe that we will
be able to ensure continuity of supply and continue to function as South
Africa's energy engine."
According to Gcabashe, the group's financial performance during the year was
encouraging, considering a modest 0.8 percent sales growth, rising primary
energy costs and increased maintenance costs associated with the plant in a
mid-life phase. Group pre-tax profit, including the favourable impact of R1.3
billion arising from embedded derivative gains, was R6.8 billion (R7.6 billion
for the 15 month period ended 31 March 2005).
Effective cost control and good working capital management enabled Eskom to
maintain its competitive position as the world's lowest-cost producer of
electricity. The introduction of a three-year tariff pricing model, agreed to
by the National Electricity Regulator, will encourage price stability and this
in turn will contribute to improved forward planning.
A return on assets of 9.2 percent and the generation of almost R12 billion
cash from operations, combined with a debt-to-equity ratio of 0.18, have added
to Eskom's already strong balance sheet and superior credit rating. Further
evidence of this was the excellent response to the initial fund-raising
programme comprising a �500-million, seven-year Eurobond in February 2006 and a
domestic R65 billion multi-term note programme was registered in March 2006. A
R2.5 billion local bond maturing in 2033 (the longest registered bond in South
Africa) was issued in March 2006 as part of this programme. "This is, indeed, a
strong platform for growth," said Gcabashe.
Medium-term capacity expansion plans will see continued measures to increase
power generation capacity and strengthen the national power transmission grid.
Two gas turbine power stations, at Atlantis and Mossel Bay, will come on stream
before the winter of 2007 and will provide 1 022 megawatts (MW).
Additional units from the three mothballed power stations being returned to
service, Camden, Grootvlei and Komati, will provide 3 600 MW of capacity when
fully operational. The first unit from Camden Power Station is already in
commercial operation.
Looking forward, and in accordance with the Accelerated and Shared Growth
Initiative for South Africa (AsgiSA) target of six percent economic growth per
annum, Eskom has committed to an expansion programme that will more than double
capacity over 20 years. To fund this, Eskom will contribute at least 50 percent
from operational cash flow, with the balance coming from borrowings. "We are
confident that the R97 billion capital expenditure programmes confirmed in
parliament recently by Public Enterprises Minister Alec Erwin will be able to
satisfy the already high and rising demand for electricity associated with
strong economic growth," said Gcabashe.
Project planning for new power plant is well advanced. The projects include
a 765 kV transmission line running from Standerton to Cape Town, open cycle gas
turbines at Atlantis and at Mossel Bay, a pumped storage station in the
Drakensberg escarpment and a base load coal power station near Lephalale in
Limpopo. Further coal, gas, and nuclear options are being evaluated for board
decision in the 2007 financial year.
"Our immediate challenge is to balance electricity demand with the available
supply until the capacity improvement programme gains critical mass. We will
have to pay special attention to operational performance, infrastructure
investment, pricing structures and customer service. We are up to the
challenge."
"Eskom has an experienced and committed workforce and this together with a
strong financial position, creates the platform that makes us confident that we
will play our part in powering South Africa's development."
Issued by: Department of Public Enterprises
14 July 2006
Source: Department of Public Enterprises (http://www.dpe.gov.za)
