The Botswana Power Corporation (BPC) posted a net profit of P206 million while its revenue grew from P525 million to P581 million at the end of March 2004. According to the corporation's 2004 annual report, this constituted a 10 percent increase as compared to 20 percent during the 2002/2003 financial year.

The operating income of P66 million is 28 percent lower than the previous year and is mainly attributed to an increase in operating expenses, especially coal and imported energy.

In his preview, the chairman of the board of BPC, Moses Lekaukau attributed the increase in revenue to a load growth of 10 percent and a six percent tariff increase that was effected during the last month of the financial year. He also indicated that the other factor was the continued growth in earnings from monies lent through the Relaxed Payment Schemes, which form significant business activity.

Meanwhile, Lekaukau said that operating expenses increased from P444 million to P526 million, constituting an 18 percent increase. Significant costs were the cost of power/energy imports, employee related costs, depreciation, with major cost drivers being the devaluation of the Pula and the price of coal.

He said the net effect of increase in revenue being less than the increase in operating costs was a drop in operating profit by 28 percent with a four percent drop in net profit.

He sees the significant drop in net profit, thereby failing to meet the set target of six percent return on the Revalued Fixed Assets, against an actual performance of five percent as a major setback. The BPC chairman said measures are being put in place to achieve the set target within the next two financial years, by end March 31st, 2006.

Lekaukau said the key financial performance indicators clearly show that the year under review was financially, not an easy one. "It was both financially and technically a difficult one," he said.

"Despite the below target financial performance, I am pleased to report that the corporation's financial position remained relatively healthy. However, there is an urgent need to ensure that financial targets are met by March 31, 2006," Lekaukau cautioned.

He noted that the fact that more than 70 percent of the country's power/energy requirements were met through imports from the Southern African Pool utilities was clear testimony that the corporation was a very active member of the regional pool.

"The Botswana Power Corporation continued to participate actively in the Southern African Power Pool (SAAP) activities. BPC continued to trade in the power pool, support the transformation of SAPP to a competitive power pool and the general restructuring of SAPP utilities," the chairman declared.

Lekaukau stressed that the challenge of providing the country with reliable, affordable and good quality supply against a backdrop of ever reducing surplus electricity supplies in the region requires particular attention.

According to the report, the corporation's profitability was affected by an adverse business environment. Some of the destabilising factors that were mentioned included lower electricity consuming by the mining sector, cost escalation of imported electricity and coal, the devaluation of Pula against the South African Rand and the high volume of energy import caused by unit trips.

The report said revenue sales increased by 10 percent to P558 million. Interest received on consumer loans increased by 20 percent to P21 million. The gross revenue, including interest earned on consumer loans has increased by 10 percent to P581 million.

The report said the escalation in the cost of coal, imported energy and other input costs pushed the operating expenses by 18 percent to P526 million. The energy import accounted for 26 percent of the total expenses and the depreciation accounted for 20 percent.

The total assets increased by 12 percent to P3.036 million. Property, plant and equipment increased by eight percent to P1.399 million.

The consumer loans, which include both Hire Purchase Scheme financed by the corporation and Rural Collective Schemes financed by the government, to meet the capital connection cost, has increased by 21 percent to P180 million.

The Rural Collective Scheme is funded by the government to provide electricity for rural consumers. BPC administers the scheme on behalf of the government.

The report noted that rural electrification and network development required the establishment of more District Service Centres to service the remote areas. "The initial high investments together with a low uptake require a long payback period for the new customer service centres, putting pressure on the corporation's operating costs and profitability in the short run," said the annual report.