Delays by power utility batter contractors
A slowdown in Eskom’s electrification programme is choking small contractors and compounding the effects of a slowing economy, says one supplier to the power utility’s clients.
Billy Neasham, CEO of electrical and lighting products distributor ARB Holdings, said on Friday that Eskom’s spending on the programme had been erratic. As a result, small electrical contractors are feeling the pressure from the slow implementation of the programme as well as low infrastructure spend in the construction, mining and manufacturing sectors.
But Eskom moved quickly to deny there had been any slowdown, saying on Sunday that it has, in fact, ramped up the programme.
ARB’s electrical business, which supplies materials used in the electrification of households and the distribution of power, directly felt the effect of the delayed implementation because contractors are its customers, Neasham said. "The contractors, who are our customers, are in limbo," he said.
The pace of the programme has a direct bearing on the company’s electrical business, which is the largest contributor to revenue and profit.
Eskom has been on the back foot amid mounting financial and operational problems, which have eroded public and investor confidence. The company, which reported a full-year loss of R2.3bn in the year to March, has to repay a R20bn short-term loan to a consortium of banks by August 31.
Eskom said in March that the Treasury has allocated it R17.3bn to electrify 640,000 households over the next three years. SA plans to achieve universal access to electricity by 2025.
In its recent annual report, ARB bemoaned reduced spend from Eskom and municipalities.
"In addition, delays in payments from parastatals had a negative effect on our contractor customers’ cash flows, their ability to pay on time and their credit ratings, which reduced their ability to buy from us."
ARB pointed to a decrease in large projects, "and the few that did materialise were won on the thinnest of margins".
As a result of the reduced workload, suppliers with excess production capacity have started competing on price.
Trading margins remain under pressure in the group’s electrical division, particularly in the sale and distribution of power cable products.
"Any positive developments in Eskom project expenditure and any other government funding in advance of the national elections will definitely have a positive effect on the overhead line sector of the business," ARB said last week.
Neasham said that as a result the group is expanding its geographical footprint with the opening of its Connect stores in convenient locations to gain access to the higher-margin electrical accessories market. Through these stores, it has entered the small to medium-size contractors market.
"We are taking steps to derisk our business. Eskom used to account for about 25%. That has now fallen to below 15%," Neasham said.
Eskom denied the electrification programme, which started in 1990, has slowed down. "The programme is well on track. We have not slowed down at all. In fact we have ramped up the programme, from 159,853 in the 2015 financial year to 215,519 in the year ended March 2018," said Eskom deputy spokesperson Dikatso Mothae.