Cape Town - Eskom has finally submitted its new funding model to cabinet for approval and expects to be given further government guarantees to bridge a funding shortfall of R190bn over seven years.
"It is one of the solutions. It is not the only solution... the others are recapitalisation of Eskom and then a hybrid between the two, between recapitalisation and guarantees," Eskom chief financial officer Paul O'Flaherty told reporters at parliament on Tuesday.
"But government is one hundred percent behind it."
Eskom chairperson Mpho Makwana said there was no timeline for an answer from cabinet on the funding model and request to extend guarantees beyond the R176bn already made available to the power utility.
Eskom's total funding gap over seven years comes to R190bn, but the company's senior management warned parliament's public enterprises portfolio committee that tariff fluctuations, failure to restructure preferential pricing contracts, dire coal supply problems and non-payment by municipalities could put further pressure on the bottom line.
"If we do not get paid, we are just going to get into a worse and worse situation from which we cannot recover," O'Flaherty said of the debt, which includes about R1.8bn from Soweto.
He stressed that the company's balance sheet was looking far healthier, partly because higher tariffs approved by the National Energy Regulator of South Africa was helping it to cover costs.
"We sold over 220 million kilowatt at 31.9 cents versus 24.7 cents. That is a good turnaround. We were selling electricity below our operating costs.
"So we are making an operating profit, but it is still not enough to foot the total interest bill," he said, referring to Eskom's losing battle to pay interest on its loans.
O'Flaherty warned that should a scenario of lower tariffs occur, this could see the shortfall increase to as much as R412bn.
He said Eskom was renegotiating its contract with mining giant BHP Billiton to supply power to its Hillside and Bayside aluminium smelters. It was hoped this would avert further losses on long-standing pricing arrangements linked to embedded derivatives.
The company had successfully done so on the contract to supply the Mozal smelter in Mozambique, which resulted in a R9bn book-keeping loss in the previous financial year, after the global economic crisis saw aluminium prices plummet.
The new terms yielded a R2.3bn profit in Eskom's 2010 financial results, O'Flaherty said.
On the two remaining smelters, Eskom was trying to convince Billiton to agree to a price equal or just below its average industrial tariff, the so-called mega-flex rate.
Anything less than the generating cost, as is the case at present, would be a deal breaker.
or are you just seeing what you want to see in this thread? 
