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Eskom is engaging municipalities over non-payment: Brian Molefe – acting CEO, Eskom

‘The solution to the arrears really, in my humble opinion, is prepaid.’

HANNA BARRY:   State power utility Eskom reported a net profit after tax of R3.6bn for the year to March 2015. It is about half the amount achieved last year, but a profit nonetheless. Eskom acting CEO Brian Molefe joins us on the line now. Brian, thanks for your time. I think many of our listeners are surprised that, given the power situation in the country, Eskom is in fact profitable. Can you explain briefly why that is?
BRIAN MOLEFE: During the year we have had to do a business process re-engineering exercise, where we had to improve efficiencies and cut costs. And we managed to cut costs of R9bn, which was something that we did during the year and that has resulted in us registering a profit. Had we not done so, we would be reporting a loss of about R6bn.

HANNA BARRY: But you do still plan to borrow in the region of R20bn from the domestic and international bond markets. What is that for?

BRIAN MOLEFE: It’s actually R60bn – that’s for capital expenditure. Our capital expenditure for the year is R60bn, R63bn and we’ll borrow R50bn to fund the capital expenditure. So the borrowing is not to fund daily operating expenses; that we can cover from our revenue. But we need to borrow to finish the capital expenditure programme.
    You remember that Eskom is involved in a capital expenditure programme of R280bn over the next five years and this is part of that to finish Medupi/Kusile, to bring on stream new power-generation capabilities.
HANNA BARRY: And where does the cost of diesel fit into that? I would assume that diesel would be a daily operating expense. What is Eskom spending on diesel each month to power those open-cycle gas turbines?

BRIAN MOLEFE: Every day, as we are running short of power from our power stations because of maintenance or other reasons, we have 2 000MW that we can get from diesel. And we switch on the diesel generators and they give us about 2 000MW that we use before we start load-shedding. So if you see us on Stage 1 load-shedding, it means that we are already 3 000MW short, but are only 1 000MW short because the 2 000 has already come in from diesel. So we are using diesel to minimise the cost of load-shedding to the South African economy.

HANNA BARRY: And how much is that diesel costing you?

BRIAN MOLEFE: In the region of about R800m per month. But it has also saved us a lot of load-shedding. The cost of not using diesel and going into Stage 1 or Stage 2 every time that we needed to go into load-shedding would have been much more for the South African economy. But we are absorbing it at Eskom. And from a macro view for the South African economy it is much less, although R800m looks like a lot of money for a month. …

HANNA BARRY: Speaking of things that are hampering, I suppose, cash flow for Eskom, diesel would be one of those. Another one is a significant increase in arrears from municipal and residential customers, particularly in Soweto, where there is an average payment level of just 16%, translating into an annual shortfall of around R600m. What is Eskom doing about non-payers?

BRIAN MOLEFE: You will have noticed that since the end of the financial year we have been in discussions with the defaulting municipalities – there were 20 of them. Nineteen of them, with the help of SALGA, have come to the party and have made alternative payment arrangements, and we have been able to avert a situation where we had to switch them off because of non-payment. And they have been adhering to the payment arrangements that they have made. In fact, the municipal debt is coming down quite significantly because the municipalities are now coming to the party.
    With respect to Soweto, we are in continuous negotiation with Soweto and the civic organisations in Soweto about what we are going to do with the arrears.
    The solution to the arrears really, in my humble opinion, is prepaid because with prepaid people can buy electricity of R5 or R10 or R20 and they can put it into the meter and they can monitor how that money is being spent.

HANNA BARRY: That was acting Eskom CEO Brian Molefe on the power utility’s results out today. We had a long discussion earlier on this afternoon about the renewable energy potential, about electricity tariffs, about the current coal situation with Glencore’s Optimum coal unit. 

To listen to the full interview, click here.

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