BPC posts P114m �artificial� profit
Mbongeni Mguni | Friday December 5, 2014 12:24
The bailout was needed to plug the gap between the cost at which the utility sources electricity and the price at which it sells it.
During the period, the BPC was incurring an average loss of 49 thebe per unit of power sold, up from 28 thebe in 2011.
Documents presented before Parliament this week indicate that had government not provided the subsidy – the largest in BPC’s history – the Corporation was scheduled to post a P1.33 billion operating loss. That loss would, however, have been a marginal improvement on the P1.62 billion deficit the BPC was set to post in the 2013 financial year, averted by an P871 million tariff subsidy.
The BPC’s operating losses were pegged at P311.4 million in 2012, P153 million in 2011, P563.6 million in 2010 and P376.4 million in 2009 due mainly to escalating costs of imported power and the lack of cost-reflective tariffs.
The corporation’s losses in 2012 and 2011 declined only due to government cash injections of P508 million and P454 million respectively.
The latest losses, however, are also associated with delays in the finalisation of Morupule B, which forced the BPC back to a reliance on imports and expensive local emergency diesel power.
“These conditions indicate the existence of a material uncertainty that may cast significant doubt about the corporation’s ability to continue as a going concern,” auditors said in a report on the latest results to the Minister of Minerals, Energy and Water Resources.
“The corporation has not met the requirements of Section 17 of the BPC Act, which requires it to conduct its affairs on commercial lines so as to produce a net operating income by which a reasonable return can be measured.”
The BPC last performed in line with Section 17 of its Act in 2005 when it posted a P77.3 million operating profit in what directors then said was “a financially and operationally challenging and difficult year”.
The corporation’s fortunes tail spun from that year with the operating losses rising from P27.1 million in 2006, to P376.4 million in 2009 and P1.6 billion in 2013 when the tariff subsidy is excluded.
Besides the tariff gap, the corporation’s 2014 financials indicate that rising costs associated with electricity imports and emergency diesel power, fuelled operating costs.
In the year to March 31, 2014, the BPC generation, transmission and distribution expenses rose to P3.62 billion from P3.42 billion the previous year, while government pumped another P450 million into purchases of emergency power during the period.
The increase in generation, transmission and distribution expenses recorded in 2014 is however, an improvement on recent years when delays in the finalisation of Morupule B, coupled with the suspension of Morupule A, forced an almost total reliance on imports and emergency power.
In 2013, generation, transmission and distribution expenses of P3.42 billion were up 48 percent year on year while the same expenses in 2014 were only up six percent.
Other cost drivers were equally benign during 2014, with overall staff costs, including salaries, down four percent at P402.7 million.
The BPC’s woes stem from the 2008 power crunch in southern Africa, which caught an Eskom-reliant BPC flat-footed.
The utility quickly began incurring higher costs of import power and later suffered billions of Pula more in costs associated with delays in Morupule B’s construction.
Despite reviews in local tariffs, the BPC’s revenues have been unable to match the rise in costs, while operational inefficiencies have added to an increasingly cash-strapped position.