Tag Archive | Kusile

Eskom sheds light on future intentions

annual report 2011/12

Eskom, whilst it may have some problems, is in a very healthy position and has electrified more than 155,000 homes this year.  It has, as promised, “kept the lights on” in South Africa but would fail in its New Build programme unless it had the backing of government financial support.

This was stated to the public enterprises portfolio committee in Parliament by CEO Brian Dames when presenting to Parliament the Eskom 2011/2 annual report figures in a presentation to back up the published annual report and financial statements.

He said that any funding issues had been resolved, particularly as far as funding for future projects was concerned, as had labour problems at Medupi power station building site.

Dames said that although sales had increased only by a marginal 0,2%, the increase in tariff allowed 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, mainly as a result of NERSA having approved a 16% increase, providing therefore an economic benefit of R11bn this year to the country’s coffers.

Paul O’Flaherty, financial director, compared the final results to NERSA’s targets for 2011/12.   NERSA had estimated a higher operating profit than eventually emerged. The lesser figure came about because of a reduction in sales due to a depressed economy but with cost savings of over R4bn, a net profit figure of R13.25bn was finally reflected in the figures which exceeded NERSA’s expectations.

O’Flaherty, however, gave some warning signals for the coming year as far as the consumer was concerned, bearing in mind that the utility had originally applied to NERSA for a 29% hike in tariffs in order to fund its power generating programme over what was then a shorter period.

He told committee members that as coal were such a large proportion of Eskom’s costs and with coal prices being unpredictable, inputs at their coal fired power generating stations could easily rise above the rate of inflation and in such as case the consumer would have to bear the brunt.

As things stood, coal costs had gone up by 29% during the year. He also said that Eskom had finally negotiated an increase of 8,1% for the workforce and this would add to input costs throughout the group.

Brian Dames said that a major issue in the coming year was to convert coal deliveries from road to rail as far as this was possible and Eskom had set a target last year earlier to move 8,2m tons by rail. So far, Eskom was looking at a figure of 8,5m tons having been achieved. This was encouraging, he said.

Dames told parliamentarians that the special tariffs enjoyed by BHP Billiton for their aluminium-smelter, originally set when Eskom had excess capacity were currently under negotiation.      Eskom had also recently been able to renegotiate more favourable contracts with zinc plants in Namibia who had until now enjoyed tariffs below cost of production.

He warned that as tariffs inevitably increased, such would be translated into debt problems, particularly at municipal level. Already it was a challenge was to manage the Soweto debt, which stood about R4.5bn at the end of the last financial year.

Dames said that NERSA had agreed, as part of recent talks, that Eskom would be allowed price increases in the future and would also be allowed to revalue its assets to allow for a higher level of depreciation. The cost of replacing Eskom’s assets today would be R500bn, compared to the historical cost of R290bn but as its debt grew, so would its financing costs.

Eskom’s rating with government support was “BBB+” and without government backing its rating would be lower. This was not a possible scenario, he said, for the country or Eskom.

Eskom’s build programme would continue as planned, the committee was told, which would deliver an additional 11 256MW by the time the Kusile coal fired power station came on stream in 2019. What would happen after that, Dames said, depended entirely on the integrated resource plan (IRP) being drawn up by the department of energy (DOE) in discussion with stakeholders.

Both DOE and Eskom are locked into investigative debate on the financial prospects for Eskom should it be stripped of the national transmission grid in order that independent power producers may enter the energy supply chain, all regulated by the presently halted ISMO Bill. Such matters directly affect the IRP and all future consequences in energy planning.

Posted in Electricity, Energy, Finance, economic, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Eskom to bring up electricity increases again with Nersa

Downgrading would damage Eskom’s ability to meet infrastructure targets………..

Finance director Paul O’Flaherty of Eskom told parliamentarians on the public enterprises portfolio committee that electricity tariffs that were truly cost-related and this had to be borne in mind by the public if Eskom were to complete its R385bn power generating construction programme.

He told MPs that his organisation needed tariffs to reach a level of 90 cents per kilowatt hour in real terms by 2017 if Eskom was to pay its debt.   “We are at 60 South African cents at the moment and in real terms we need to get that up to 90 cents”, he said. According to a report in Business Day (26 June), National Treasury has received the Eskom proposal.

Each year Eskom has to approach Nersa, the electricity regulator in South Africa, for any tariff increases, usually mid-year, and O’Flaherty said Eskom hoped this year it would be able to extend the multi-year price determination (MYPD) period to five years from three to get financial certainty, and secondly to cover production costs when it approached Nersa this year.

He said erratic tariff determination over the five years leading up to 2010 saw the Kusile power plant project put on hold because Eskom “would not have been a going concern. The MYPD needs this sort of time frame for financial reasons”.

He said, “We need to constantly remind [the consumer] that Eskom has to have cost-reflective tariffs in order that our investment grade rating is sound. As we sit, we have raised R180bn in debt and we need to get to R300bn.”

He reminded parliamentarians that a good credit rating would prevent Eskom going the path of Sanral, where, he said, Moody’s had downgraded the road agency.

“I’m pleased to announce”, he said, “that 77% of our funding for Kusile is completely secured and the rest has been identified.”    However, the question of Eskom remaining a ‘going concern” covering its production costs was the issue now being faced, he noted.

O’Flaherty warned MPs that eventually, from an Eskom point of view, it had to “come  down to a further serious tariff rate discussion with Nersa” but he would not respond to MPs questions as to what tariff rate it was that he was referring to and what tariff rate it was that Eskom wanted.

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Fuel,oil,renewables, Public utilities, Trade & Industry, Uncategorized0 Comments

Eskom says Medupi and Kusile will have great local benefits

Paul O’Flaherty, Financial Director of Eskom, told the parliamentary committee on economic development, that the building of South Africa’s new Medupi and Kusile power stations ranked among the top five power generation projects in the world in terms of energy capacity.

He said that Eskom’s “build programme” would contribute considerably to skills development and facilitate manufacturing capability in South Africa.   Competition for skills was fierce, both internationally and locally and the reality was, O’Flaherty said, that Eskom currently needed to spend R450bn for six years until 2017, as part of the government  Integrated Resource Plan, which was a considerable responsibility.

The funding plan to be serviced was R300 billion to 2017, as at 31 December 2011.

Medupi and Kusile were massive in their scale of construction, he said.  Parts and cement weighing the same as 14 super-tankers would be transported over land and steel, enough to build five of the world’s tallest buildings, would be used – all to produce a generation capacity of 10GW. During  the construction of Medupi, Kusile and a third plant being built called Ingula, about one half of the programme would involve the use of local content thereby directly benefiting the SA economy.

O’Flaherty said it was probable that just Medupi would touch the lives of 160 000 people in Limpopo province alone and would be of great support to local and national infrastructure.    Each project, he said, would in its own way immeasurably impact local towns through local spending and investment as each contract proceeded.

The project summary of Medupi power station, for example, was that it was a six-unit coal-fired power station with a planned capacity of 4 764MW, the projected cost being R98,9bn, O’Flaherty said.  Construction had commenced in March 2007, with the first unit planned to supply power to the grid between May 2013 and September 2013, and subsequent units at six to nine-month intervals thereafter.

Medupi had been delayed for various reasons, which O’Flaherty enlarged upon being mostly the boiler foundation re-design problems involving foundation work, consequent re-worked steels structurings and issues with regard to matters with the boiler contractors themselves.

Kusile, situated close to the existing Kendal power station near the town of Witbank in Mpumalanga province, is also a six-unit coal-fired power station with a planned capacity of 4 800MW and the projected project cost to completion is R121bn, all of which is having a great impact on nearby Delmas, O’Flaherty said.  The first unit planned is to be commissioned in December 2014, with subsequent Units 2 and 3 at 12-month intervals and units 4, 5 & 6 at eight-month intervals thereafter.

Ingula power station is a four-unit pump storage power station, he said, with a planned capacity of 4 800MW. The projected cost to completion was R21,9bn, with an estimated 7% impact on the GDP of nearby Ladysmith. Construction had commenced in mid-2006, and the first unit was planned to be commissioned in January 2014.

In answer to MP’s questions on the future of Medupi and Kusile power stations and how this would affect generating reserves, O’Flaherty said that providing demand grew at between the projected and expected 2 to 3 per cent, then Eskom would have more than a 20 per cent reserve margin by the time it completed the second power station, Kusile, both having a life span of about 40 – 50 years as was the case with most power stations.

Posted in Cabinet,Presidential, Energy, Finance, economic, Labour, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry0 Comments


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