Johannesburg - Eskom told parliament on Tuesday it was unable to foot the interest bill for the money it has borrowed, despite the fact that the power utility posted a R3.6bn operating profit in its previous financial year.
Presenting Eskom's annual results to parliament's public enterprises portfolio committee, finance director Paul O' Flaherty said for every rand borrowed, Eskom can only repay the interest on 57 cents.
Although Eskom's annual report reflected a return to profitability in the year to end-March, compared to the loss of R9.7bn in its previous financial year, it had R110bn in debt on its books.
O' Flaherty said debt levels would have to significantly increase further to fund the construction of the new Medupi and Kusile power stations. However, he said the annual 25% increases that energy regulator Nersa approved would start to generate "additional surpluses".
"As from March 2010 (Eskom) were in the red but will start coming out of that this year and the years following, thanks to the 25% tariff increase annually," said O' Flaherty.
He said Eskom was intent on keeping expenditure within its means, in spite of the fact that the country needed to create 50GW of new electricity capacity by 2028.
"Our goal is to maintain our credit rating," said O' Flaherty. "We have benchmarked ourselves against other utilities across the globe to see what they do in a situation when undergoing a big build.
"We have to make sure that this company remains a going concern and can only commit to what we can afford."
He said it was critical that a funding model for the power utility was finalised to maintain its investment ratings and to ensure that Eskom's build programme continues as planned.
Commenting on the funding gap for the build programme over the next seven years, O' Flaherty said in spite of the new approved tariffs, Eskom is facing capital shortfalls of R115bn by 2013 and R190bn by 2017 (the year in which the Kusile power station will be fully commissioned).
He said no plans had yet been made to meet energy demands beyond 2017, but Eskom evisaged a "hybrid" of solutions, including a recapitalisation programme as well as government guarantees.
Eskom is hopeful that it will receive "guidance" from government on this matter soon, so that it could go ahead and finish Kusile for which only 80% of the contracts have been signed.
The contracts that have been signed have also been put on slower payment terms, as Eskom doesn't yet have sufficient cash flow.
Eskom CEO Brian Dames said there was no viable alternative to the construction of Kusile to meet South Africa's energy demands. It was crucial, he said, to find a funding solution for this.
But he said it was also critical to make a plan for demand after Kusile was built - post 2017.
- Fin24.com