Eskom Must Strengthen Balance Sheet, South Africa Minister Says

  • Public Enterprises Minister Brown backs sustainable tariffs
  • Power utility `not out of the woods' after power cuts in 2015

Eskom Holdings SOC Ltd. needs to boost its finances by charging more sustainable tariffs for electricity and keeping down its coal costs, said Public Enterprises Minister Lynne Brown, who oversees South Africa’s state-owned power utility.

The power company needed a 23 billion-rand ($1.6 billion) bailout from government this year as its costs spiraled and it struggled to generate enough electricity, forcing managed blackouts almost every other day in the first half of 2015. While it has raised tariffs fourfold in the last 10 years, Eskom needs to charge higher prices to cover its expenses and fund the 237 billion rand it needs in the five years to 2019.

“We are producing electricity at higher costs than what is being charged, that’s one of the issues we need to deal with,” Brown said in an interview following a speech at the Johannesburg Chamber of Commerce. “What I support is a more sustainable costing of the tariffs over a longer period.”

Brown declined to say whether she supported prices that fully reflect Eskom’s costs. “If we were to charge what it costs to produce electricity it will just be really, really expensive,” she said. “It’s really over the next 10 years, what would be the most sustainable for Eskom?”

Brown said in a speech to business leaders she was “very pleased” with Eskom currently after the utility went 100 days without having to cut power to consumers. The company’s first-half profit rose 22 percent to 11.3 billion rand from a year earlier, it said last week.

“Even though we are now in the 112th day without load shedding, we are not out of the woods yet,” Brown said, using the local term for managed power cuts. “We’re OK for what we have, for growth we’re not OK.”

To keep down the cost of coal, Eskom must re-evaluate its supply partners, particularly its so-called “cost plus” mines, Brown said. “It’s something that we need to look at.”

Eskom, which uses coal for 83 percent of its power generation, burned 57 million tons of the fuel in the six months ended Sept. 30. Its primary energy costs, 52 percent of which were for coal, increased 7.7 percent to 41 billion rand. Local prices for the fuel have declined 43 percent since the start of 2014 to $47 a ton.

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