Eskom Seeks Higher South Africa Power Prices Despite Profit

  • Utility's first-half profit increases 22% from year earlier
  • Funding requirement is 237 billion rand through 2019

Eskom Holdings SOC Ltd. will seek higher electricity tariffs to service its 300 billion-rand ($21 billion) debt pile even after first-half profit climbed 22 percent, further squeezing South African consumers.

A 13 percent increase in power prices helped Eskom’s net income climb to 11.3 billion rand in the six months to Sept. 30, from 9.3 billion rand a year earlier, Chief Executive Officer Brian Molefe told reporters in Johannesburg Tuesday.

While this has “stabilized” Eskom, South Africa’s power utility will continue to request higher tariffs to pay off debt, Chief Financial Officer Anoj Singh said.

“It will certainly not impact our tariff decisions relating to Nersa," Singh said, referring to the National Energy Regulator of South Africa, which sets electricity prices. “We have a massive debt burden that still needs to be serviced."

Eskom, which provides 95 percent of South Africa’s electricity, had to impose managed blackouts almost every other day in the first half of this year as it struggled to keep up with demand after more than a decade of under investment in generation. The state-owned company is at once having to urge customers to use less of its product, reducing sales, at the same time as raising money to maintain old power plants and build new ones.

Volumes Drop

The volume of electricity sold fell to 107,307 gigawatt-hours, a fourth straight first-half decrease, as Eskom wasn’t able to meet demand and users sought alternative sources, known as grid defection. Molefe, who joined Eskom in April from state rail operator Transnet SOC Ltd., said having to increase prices while encouraging consumers to use less was a "chicken and egg" situation.

Still, improved plant performance and more maintenance will ensure enough power for the economy in the future, Molefe said. There are no cuts planned through until at least the middle of next year, he said.

“I do not agree there’s a demand crisis," he said. “We have enough capacity to support economic growth."

Electricity prices have risen fourfold in the past 10 years, while inflation has averaged 6.3 percent a year, according to data compiled by Bloomberg.

Eskom needs about 237 billion rand of funding in the five years to 2019 and has secured 84 percent of the 46 billion rand needed this year, Singh said. The company is owed 32.3 billion rand by customers, including large industrial users and municipalities. Soweto, a township near Johannesburg, owes 9.8 billion rand, 95 percent of which is debt that’s more than 60 days overdue.

The company is considering bilateral loans with Chinese entities and the World Bank as well as international and domestic bonds as other funding options, Molefe said.

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