Eskom
The growth in electricity sales (GWh) was 2,9% compared to
the sales growth of 4,9% in the previous year. The electricity
price increase for 2007/8 was 5,9%. Primary energy costs
increased from
R13 040 million in 2007 to R18 314 million in
2008. This is mainly due to the steep increase in coal prices
and the extended use of the diesel-powered open-cycle gas
turbines due to the reduced reserve margin in October 2007
and at the beginning of 2008.
Eskom received a dividend of R800 million (2007: R200 million)
from its subsidiary Gallium Limited.
At the end of March 2008 an amount of R1 978 million (2007:
R1 446 million) of the electricity trade debtors was older than
75 days, a substantial portion of which relates to pre-2001
service-level agreements. Refer to the financial statements for further information. Adequate provision
has been made for impaired electricity debtors.
Eskom is not in a tax-paying position and the tax credit to the
income statement was R354 million (2007: a tax charge of
R2 407 million), which is mostly deferred tax. Some R417 million
(2007: R1 377 million) in tax was paid to the South African
Revenue Service during the review period.
Change in asset lives of generation plant
With many of Eskom’s power stations in the 30-year age group,
the board deemed it prudent to extend the economic life of the
power stations from 35 to 50 years. This change was treated as a
change in estimate in terms of International Financial Reporting
Standards. The impact of this adjustment was a reduction of
R484 million in the depreciation charge for the current year.
International experience indicates that power stations generally
have an economic life greater than
50 years, and there are
examples of stations much older than this. The major indicator of
the economic life of a power station is not the age of the plant,
but rather the availability and cost of coal. It is much more costeffective
to refurbish a power station than to build a new one,
and with refurbishment it is possible to both significantly extend
the life and improve the efficiency of a power station.
Embedded derivatives
The net impact on the income statement of changes in the fair
value of the embedded derivatives of the company is a fair value
loss of R149 million (2007: R4 131 million fair value gain) and a
fair value loss of R143 million (2007: R4 305 million fair value
gain) for the group. At 31 March 2008, the embedded derivative
assets amounted to R12 713 million (2007: R8 686 million)
and the embedded derivative liabilities to R5 084 million (2007:
R914 million) for the group.
The forward electricity price curve used to value the embedded
derivatives was 27,5% for the 2008/9 year, 25% for the next
three years, 18% for the 2012/13 year and CPI plus 2% thereafter.
A sensitivity analysis for the embedded derivatives appears in note 3.
Revenue and credit management
Eskom maintains systems, procedures, processes, and training
programmes to ensure efficient and effective revenue
management. In addition, adequate cash collection and investment
management processes were in place throughout the period
under review.
This is covered in detail in note 3 of the financial statements.
Valuation of assets and impairments
There is cross-subsidisation between certain customer categories
(depending on electricity consumption, geographical location
and voltage supply). However, Eskom recovers all the costs of
supplying electricity to its overall customer base and earns a
positive return on assets. On this basis, the directors believe that
no adjustment is required to the value of assets relating to any
particular customer category.
The directors believe that, based on the principle of crosssubsidisation,
there is no need to raise a provision for the
impairment of certain classes of property, plant and equipment
in the current period. It might, however, be necessary for Eskom
to raise a provision for impairment in respect of certain classes
of assets in future years, depending on the nature of the planned
restructuring of the electricity distribution industry.
Subsidiaries
Eskom Enterprises (Pty) Limited group
Turnover for the year was R5 456 million (2007: R4 457 million).
Net profit after tax from continuing operations was R366 million
(2007: R896 million) while the loss from discontinued operations
was R13 million (2007: R57 million), resulting in a total profit of
R353 million (2007: R840 million). Of this, R311 million (2007:
R845 million) is attributable to the equity holder and R42 million
(2007: loss of R5 million) is attributable to minorities. (The profit
for 2007 was favourably impacted by the reversals of impairment
provisions raised in previous years.)
The actual performance of the group for the year was
substantially better than expected due to additional maintenance
and the capital expansion programme work received
from Eskom divisions, Anglo Coal and the Department of
Minerals and Energy. The turnaround strategy implemented at
Arivia.kom (Pty) Limited (arivia.kom) during the previous year
has reaped tremendous benefits, with the company achieving a
profit before tax of R88 million (2007: loss of R7 million).
Disposal of MKC
Eskom Enterprises disposed of its investment in Mountain Kingdom
Communications (Pty) Limited (MKC) on 31 March 2008, for
R68 million, resulting in a loss at group level of R142,7 million. Eskom
Enterprises was released from its letter of support for a R156 million
loan from Standard Lesotho Bank to Telecom Lesotho as part of the
MKC disposal.
Disposal of arivia.kom
Transnet and Eskom are currently working on the outsourcing
and disposal of the arivia business. Following a public release of
an expression of interest document and a rigorous adjudication
process, a shortlist of prospective bidders has been drawn up.
It is expected that the sale will be completed by 31 March 2009.
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Click here for more details on Eskom Enterprises group business interests earmarked for sale. |
Escap Limited and Gallium Insurance Company Limited
Eskom’s captive insurance subsidiary companies, Escap and
Gallium, continue to provide a full range of customised shortterm
insurance products to the Eskom group.
While Escap’s underwriting loss for the year is R54 million
(2007: underwriting profit of R86 million), it showed a
net profit after tax of R87 million (2007: R186 million),
reflecting the effect of investment returns.
Gallium continues to be used on a limited basis, with
Escap fulfilling substantially the full insurance mandate for
Eskom. The ongoing role of Gallium is considered on a
year-by-year basis.
Gallium’s underwriting profit for the year is R10 million
(2007: R109 million), with a net profit of R63 million
(2007: R200 million). Gallium paid a dividend of
R800 million to Eskom during this financial year (2007:
R200 million).
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