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dam-l Eskom income down/LS
This is Southern AFrica's biggest energy utility, and plays a role in virtually all of the big energy projects in the region.
05 August 1999
Tough market takes toll on
Eskom
Robyn Chalmers
ESKOM has been affected by tough economic conditions and market
volatility in the year to end-December, predicting a sharp fall in net
income to about R1,8bn from R2,75bn last year.
This is worse than earlier predictions of a 25% fall in net profit between
1997 and 1999, with the total drop over this period expected to be
almost 50%.
The electricity utility has said it clearly will meet, and exceed, its contract
with government to cut electricity prices 15% in real terms by next year,
meaning prices for customers will continue to fall in real terms.
Eskom CE Allen Morgan says net profit remains substantial and the
electricity utility expects strong growth in revenue and operating profit in
the coming years.
Future growth is likely to be sourced largely from local sales as
Saldanha Steel and a number of smaller projects, come on stream. "We
are not relying on big export growth in the future."
There has been a drop in demand for electricity from neighbouring
countries over the past two years, a key factor behind a contraction in
Eskom's electricity sales last year. It expects zero growth or further
contraction this year.
Falling or stagnant sales have increased Eskom's excess capacity and
reduced the need to build new power stations. It estimates that it will
require new power generation facilities only in 2009. This could,
however, be skewed by a commitment to buy power from Cahora Bassa
in Mozambique, despite having excess capacity locally.
Morgan says a key factor behind the predicted drop in net income this
year is the downturn in the local and global economy and in commodity
prices, notably aluminium and ferrochrome.
Eskom has contracts with a number of large industrial groups, which are
linked to commodity prices, and weak markets ultimately affect its
revenue.
Other factors include the cost of Eskom meeting its electrification targets
in terms of the reconstruction and development programme and the
significant management restructuring announced earlier this year, in
terms of the which it has shed almost half of its workforce over several
years, paring numbers to about 36000 employees from 66500 in 1985.
Morgan points out that Standard & Poor's has retained Eskom's rating
at BB+ this year, which is termed a speculative grade. The utility's
rating from Moody's is Baa3, an investment grade.
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Lori Pottinger, Director, Southern Africa Program,
and Editor, World Rivers Review
International Rivers Network
1847 Berkeley Way, Berkeley, California 94703, USA
Tel. (510) 848 1155 Fax (510) 848 1008
http://www.irn.org
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