A recent excerpt from the Eskom annual report has revealed that the company recorded a profit margin of R3.6bn for the year ending March this year. This comes after Eskom recorded a loss of R9.7bn in 2009. How is this possible and what do the public have to say about it all? Let’s take a look…
Where does the money come from?
The CEO of Eskom claims that the reason for the remarkable turnaround in fortune is due to a combination of increased electricity tariffs as well as the re-negotiation of derivative contracts with numerous companies. A big thorn in the financial side of Eskom in 2009 was the derivative contracts held with three aluminium smelters owned by BHP Billiton. These have since been re-negotiated and have freed up a reported R4.6bn in liabilities for Eskom in 2010.
Eskom CEO Mpho Makwana had the following comments:
"Last year we made a commitment to break even this year. We have bettered that. South Africa can now take solace in the knowledge that Eskom is less of a burden and returning to the jewel in the SA crown it was once was."
What will happen to these profits?
Eskom claim that the profits will be used to improve its credit ranking and debt situations with numerous companies. Many fear however that some fairly substantial bonuses will be paid out to key Eskom employees and investors. A recovering Eskom is a good thing for the company and for the country, but recording profits of such substantial margins has to be questioned when millions of South African’s are struggling to pay electricity bills on a monthly basis. Many businesses have even been forced to close down in recent times due to the Eskom tariff hike earlier this year.
What do consumers have to say about this?
The general reaction from the South African public has been one of outrage and disbelieve. Many feel that Eskom should take this as a sign that perhaps tariffs are higher than they need to be and that perhaps Eskom should consider the need to further raise tariffs over the next 2 years. Others feel that these profits should be used to better maintain and build upon the existing electricity infrastructure around the country or go towards the initiative of Solar Power Research.
Only time will tell what the Eskom power profits will actually be used for, but for now it’s probably a safe bet to assume that Eskom will use this money to reward workers internally and that the public will feel no benefit of the profits that they created.