High price of power

Marcia Klein

Marcia Klein

Eskom has warned of escalating costs not only because of the increase in the price of things like coal, but also because of higher costs directly related to tight electricity supply.

Eskom chief executive officer Jacob Maroga, who announced a slump in profit before tax to R1,3billion from R9,4billion for the year to March, said Eskom was experiencing escalating operating costs because it was running its more expensive plants more than they were designed to do, in order to keep up with electricity demand in the face of tight supply.

He also said that Eskom's problems have "impacted the bottom line of the economy" much more than the bottom line of Eskom.

He warned that Eskom's "underlying financial health metrics are not going in the right direction".

Maroga said "this nation is at a crossroads from a supply point of view" and that he foresees a "low road" if we are just relying on building power stations, which will see the ratio between supply and demand turn negative by 2011-12.

A 10percent reduction in demand was imperative if we wanted a high road results, he said. Currently, South Africa has managed to reduce demand by about four percent.

Eskom's aggressive build programme is estimated to cost over R1trillion in the longer-term.

Eskom has secured R60billion from government and has launched bonds to raise money.

It has also secured a significant price hike following an application to the regulator.

Public Enterprises Minister Alec Erwin confirmed the appointment of the former AngloGold Ashanti boss Bobby Godsell as the new chairman, and said farewell to outgoing chairman Valli Moosa, but indicated that it was not his wish that Moosa leave.