Eskom asks staff to quit to contain soaring costs by Sikonathi Mantshantsha IN A BID to improve its financial performance and contain spiralling operational costs, Eskom last month asked its 46,000 staff to raise their hands for a voluntary separation programme. The state-owned company, which is facing rising costs, lower-than-expected revenue and a diminishing ability to keep the lights on, hopes this will stave off further credit-rating downgrades and bridge its funding shortfall over the next four years. Last month we asked employees, in a completely voluntary programme, to apply for severance packages, spokesman Andrew Etzinger said on Tuesday. This is one in a range of considerations, and each application will be dealt with by management on its own merits, putting the future needs of Eskom first. Eskom announced on Tuesday that net profit in the six months to September dropped 24% to R9.3bn as it battled broken equipment and lower sales volumes. Despite a 1.4% fall in volumes, revenue rose 5.4% to R82bn. Its profits have been declining for three years, and it expects to report an annual profit of about R500m at year-end in March. Eskom launched an internal financial efficiency drive last year to cut costs and impose efficiency. It was targeting cash savings of R9.8bn for the year ending March, and of R60bn in five years, said finance director Tsholofelo Molefe at the company’s results presentation on Tuesday. But efficiencies alone will not resolve the company’s financial difficulties, she said. The company has approached the government for an equity injection of at least R50bn. The Treasury said it would raise R20bn and hand it over next year. Eskom CE Tshediso Matona said SA would be living on the edge for a long time, and something has to give. Unless something miraculous happens, we’ll stay with this situation for the foreseeable future. Eskom has grown its employee numbers an average of 23% since 2008, with the average total cost per person rising 60% since then, according to its financial reports. In the year to March, average total cost per employee was R480,000 a year. Its management teams would consider applications to terminate employment and would approve applications at their sole discretion, Mr Etzinger said. Forced retrenchments are not being contemplated. Eskom is struggling with declining sales revenue because of lower electricity price increases than it deems appropriate, resulting in an estimated R225bn funding shortfall over the years to April 2018. It also must simultaneously cope with ageing infrastructure that has resulted in a third of its generating capacity currently being out of service due to breakdowns and planned maintenance — resulting in the recent nationwide blackouts. The National Energy Regulator of SA (Nersa) granted Eskom a price increase of 8% for the five years to April 2018, half of the 16% Eskom said it required. As a result, Eskom’s debt was recently downgraded to just two notches above investment grade by the major rating agencies, which cite its deteriorating infrastructure and lower price increases as concerns. We’re concerned that any further downgrade may result in some debt covenants being breached and loans being recalled, Ms Molefe said. Next year Eskom will approach Nersa to review the five-year price increases as it expects the cost of producing power to rise 12.5% by March. By then it will cost Eskom 67.14c to produce a kilowatt-hour of power, up from 59.67c/kWh last year. Nersa has only allowed it to charge 65.51c/kWh in the year ended March 2014, rising to 89.13c/kWh by March 2018. A one-year upward adjustment of R7.8bn was allowed for next year, to recover the higher operating costs Eskom had last year. The regulator allows Eskom to recover operating cost increases of more than 10% when they are out of the utility’s control, such as the price of coal. Financially, Eskom will still be challenged, thus we require that the issue of cost-reflectivity (in pricing electricity sales to consumers) be addressed quite decisively, said Mr Matona. Public Enterprises Minister Lynne Brown said on Tuesday the government would support Eskom in its quest for higher tariffs. Her department was working with the Department of Co-operative Governance and Traditional Affairs to resolve municipalities’ bad debts to Eskom of nearly R2.7bn. Article provided with the kind courtesy of bdlive.co.za
Posted on: Wed, 26 Nov 2014 09:09:53 +0000
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