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Date : 20/04/2004
Source: Department of Public Enterprises
Title: J Radebe: Eskom's 2003 Financial Statement


PRESENTATION OF ESKOM'S 2003 FINANCIAL STATEMENT: Remarks by JEFF RADEBE, MP, Minister of Public Enterprises, Megawatt Park, Johannesburg, 20 April 2004

Chairman of Eskom Holdings, Mr Reuel Khoza
Members of the Eskom Board present here today
Eskom Chief Executive, Mr Thulani S Gcabashe
Members of the Executive Committee of Eskom
Members of the Press Corp
Distinguished guests, Ladies and Gentlemen.

Today heralded the first annual general meeting of Eskom where Eskom's financial results as a (Pty) Ltd were presented. This in itself is something of a staging post along the road of Eskom's restructuring.

Eskom is a global company that is extending its reach across all continents and establishing itself as a world leader in a number of areas. As the shareholder representative, I am proud to share with the world Eskom's 2003 financial results. Both the CEO and the Chair have outlined the details so let me not go over the same territory, except to remark that Government notes with pleasure the 10% increase in turnover by R3,1bn from R29,7bn to R32,8bn. We have also noted that the 18% decrease in net operating income to R6,8bn is due to various factors, not least of which was a 27% increase in primary energy costs. Interest rate cuts and the depreciating rand have also left their mark, contributing towards the 140% increase in net fair value adjustments on financial instruments. Cumulatively, net profit after tax for this period has decreased by 5% to R3.5 billion from R3.7 billion in 2002. The debt equity ratio continues to improve and indicates greater debt capacity for the future capital investments relating to the building of new power stations.

Eskom has declared a dividend of R569 million. Government, of course, welcomes this contribution from the restructuring process. It is indicative of one element in our overall approach that suggests that rather than dismantle and privatise our utilities in one big bang, it is better to restructure them in a way that allows them to continue along a development path as well as making financial contributions to the state as a whole. Industry watchers will note that there are various policy paths regarding the energy and electricity sectors open to governments around the world. In South Africa, we do not face the challenge of restructuring an inefficient or bloated entity, but we do require increased private sector investment in the sector as the projected demands for cheap electricity and power are simply too great for the state or the entity to handle on its own. But we must note the California and Enron experiences, and the impact of increasing convergence and consolidation in global markets. Some estimates suggest that between 2001 and 2030 some 16 trillion dollars of investment is required in the global energy sector to meet global needs. The developing world needs about 50% of that estimate, and Africa's need is about 7.5%, or $1.2 trillion!

Our ANC Government understands that the performance by state-owned enterprises extends beyond profitability towards integrated and deliberate development. We have made it clear that state-owned enterprises have a role to play in sustainable development and Eskom will therefore continue to be measured by the successful execution of this developmental mandate. It is quite pleasing to note that Eskom has performed well in discharging its mandate. In the past year, Eskom has electrified another 175 396 homes, exceeding Government's target of 164 107, including those of farm workers for and on behalf of Government, indicating Eskom's commitment to development at grassroots level. Capital expenditure on electrification was R586, million exceeding Government's target of R560 million and much more than 2002.

The National Electricity Basic Services Support Tariff Policy as gazetted by Government in July 2003 aims to bring relief to low income households by providing 50kWh of free electricity monthly. By December 2003, 35% of municipalities, servicing an effective 425 000 customers had entered into agreements with Eskom to facilitate the roll-out of this policy. Formal procedures to roll out the implementation of the anticipated free electricity have since commenced.

In addition, showing Eskom's continued commitment to socio-economic development, Eskom has, as part of its procurement policies adopted continued support for SMMEs and large black business for the procurement of goods and services, thereby contributing to BEE. An amount of R6,861 billion was spend in this regard, an increase of R1,970 billion from the R4,891 billion spend in 2002 and R1,816 billion more than the target of R5,045 billion. All amounts include VAT.

I recently released Africa First!, a small booklet that outlines the work that our major SOEs do on the African continent. Eskom, through Eskom Enterprises, is certainly no slouch in this critically important area of operations. Earlier I remarked on the huge investments in African energy and electricity systems that are needed for the continent to keep its head above water in a globalised environment. If we take a closer look at our continent's needs, we see that Africa's generation, transmission and distribution needs account for about 5, 8 and 7% of the global share of investment. These are small amounts compared to the rest of the world, and experience shows that it is critical to spend every single dollar as effectively as possible, with as little allowance for waste as possible. We believe that Eskom's expertise, garnered over many years of working in Africa, with African governments and enterprises, alongside global competitors, in joint ventures and in association with global donor agencies, will continue to contribute to Africa's ability to power itself into the next centuries. To this end, I am pleased to note the establishment of a dedicated NEPAD team in Eskom. It is up and running, ensuring NEPAD objectives through effective and calculated electrification market expansion in Africa.

Let me use this opportunity too, to thank Eskom and 'Eskomites' everywhere, for the hard work they all put in to ensure that polling stations during the recent successful elections operated well. The speed with which you sorted out temporary power problems, especially in remote areas, was noted by the IEC and other observers alike. Well done, and thank you.

Finally, let me also say that I have enjoyed my interactions with Eskom during the last five years. I can say, without fear of contradiction, that Eskom remains a jewel in the crown of state owned enterprises in South Africa. We have learnt a lot together and I am pleased that today we have an entity that is sensitive to the needs of its consumers, understands its development role, and remains committed to being a world leader in the provision of cheap electricity.

I thank you.

For comment contact
Miranda Strydom
Cell: 082 908 8976
Issued by: Department of Public Enterprises
20 April 2004

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