Eskom to focus on cost-saving initiatives

ESKOM is renegotiating a variety of existing contracts to save money as procurement costs remain above market norms against a declining electricity revenue.

The debt-laden power utility this week said that it planned to renegotiate some of its debt service cost, coal cost renegotiations and independent power producer (IPP) contracts.

Group chief executive Andre de Ruyter said some coal contracts were competitively priced but others were too high.

He said Eskom needed to focus on procurement savings and reduced spending on expensive coal.

“We therefore should not look at our coal contracts through a single lens but individually,” De Ruyter said, “and understand what the cost structures are, what the calorific value is, what the coal quality is and then compare to benchmarks that we have internally and assess what the appropriate coal price would be for a particular supplier to a particular power station.”

De Ruyter said Eskom’s year-todate cost savings was above target as it had reduced fuel oil cost and consumption, as well as diesel consumption at its coal-fired power plants.

“We have taken a knife to our cost and our year-to-date costs are above target, so cost discipline is very much a hallmark of our every discussion that we have as an executive committee. “we have a really strong focus on managing our cost base downwards, and in particular we are going to be focused on procurement savings and reducing our spend.”

Eskom said it had saved 38percent by optimising open-cycle gas turbines usage, with a total spend of R4.3billion against the provision of R6.98bn in the 2020 financial year.

De Ruyter said Eskom was currently unable to service its R450bn debt from its balance sheet as revenue volumes had declined at least 1percent a year against a 30percent increase in operating expenditure in five years.

He said Eskom had taken steps to redice its working capital while seeking to recoup about R28bn of the municipal debt in order to bolster its balance sheet..

“Some of our inventories are too high, some of our payment terms are (too generous), particularly to multinational corporations whose cost of capital is lower than Eskom’s... so we are taking steps to reduce that.

“And we are significantly reducing our capital expenditure in a responsible manner, but in a prioritised manner to ensure that we get the most bang for our buck,” De Ruyter said.