Eskom blames lower tariff hike for revenue shortfall
Cape Town - Eskom experienced a revenue shortfall in its financial year 2014/2015 due to challenges created by the multi-year price determination of the National Energy Regulator (Nersa) that was determined at 8% instead of the 16% it applied for, said acting chief financial officer Nonkululeko Veleti.
This left Eskom with a significant gap to close, she said in her report as part of Eskom's 2014/2015 integrated annual results released on Tuesday.
She also pointed out in the report that Eskom's programme to build new power generation has cost R265bn since 2005.
The group net profit for the year ended March 31 2015 was R3.6bn compared to R7.1bn in the 2013/2014 financial year. The net profit of the company was R2.8bn.
Electricity sales slipped by 0.7% in 2014/15, with the impact of load shedding contributing 548GWh to the decline, effectively 34% of the loss in sales.
Although the electricity price rose by 8%, the above-inflation increase in costs borne by Eskom is not sustainable, Veleti emphasised in her report.
Primary energy costs for the year rose by R13.6bn, driven by the increased use of independent power producers (IPPs) to reduce the effect of load shedding, as well as the R8bn due in terms of a Medupi coal supply agreement as a result of delays.
Cash and cash equivalents for the company dropped from R19bn in 2013/14 to R8bn at March 31 2015. Net cash from operating activities of R25.4bn was not sufficient to cover the debt repayments due and interest payable of R15.3bn and R17.1bn, respectively.
A total of R53.2bn was spent on property, plant and equipment, intangible assets and future fuel. This was largely funded by new debt of R50.6bn.
"As a result of the above, we experienced deterioration in all of the company’s critical financial solvency ratios. Interest cover decreased from 0.65 to 0.44, the debt-to-equity ratio worsened from 2.21 to 2.70, the debt service cover ratio decreased from 1.22 to 0.82 and the gross debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio deteriorated from 11.84 to 13.32," said Veleti.
"A positive rate of return is required to be financially sustainable in the long term. Currently the pre-tax real rate of return is 0.57%."
Veleti said in her report that the future of Eskom is dependent on a solid financial foundation.
"During this stabilisation phase, we are focused on financial recovery on the way to achieving financial sustainability. This involves achieving cost-reflectivity in our price, being more cost efficient in our operations and regaining the confidence of stakeholders, particularly our customers and providers of funding, to secure our sustainability and future growth," she said.