Eskom has finally submitted its new funding model to Cabinet for approval and expects to be given further government guarantees to bridge a funding shortfall of R190-billion over seven years.

"It is one of the solutions. It is not the only solution...  the others are recapitalisation of Eskom and then a hybrid between the two, between recapitalisation and guarantees," Eskom chief financial officer Paul O'Flaherty told reporters at Parliament on Tuesday.

"But government is one hundred percent behind it."

Eskom chairman Mpho Makwana said there was no timeline for an answer from Cabinet on the funding model and request to extend guarantees beyond the R176 billion already made available to the power utility.

The emphasis on recapitalisation suggests that Eskom get a further cash-injection beyond the R60 billion advanced in the previous financial year to enable the company to raise debt.

Eskom posted a net profit of R3.6 billion in 2010 compared to a loss of R9.7 billion last year, but it remains unable to foot the interest bill for money it has borrowed. Its total debt burden stands at around R110 billion and its needs more funding to complete its new Medupi and Kusile power plants.

O'Flaherty said for every rand the company borrowed on the market, it could only repay 57 cents at the moment.

Eskom's total funding gap over seven years to finance its expansion programme comes to R190bn. The company's senior management however warned Parliament's public enterprises portfolio committee that tariff fluctuations, failure to restructure preferential pricing contracts, dire coal supply problems and non-payment by municipalities could put further pressure on the bottom line.

"If we do not get paid we are just going to get into a worse and worse situation from which we cannot recover," O'Flaherty said of the debt, which includes some R1.8 billion from Soweto.

He stressed that the company's balance sheet was looking far healthier, partly because the 25 percent tariff increase approved by the National Energy Regulator of South Africa was helping it cover costs.

"We sold over 220 million kilowatt at 31.9 cents versus 24.7cents. That is a good turnaround. We were selling electricity below our operating costs. So we are making an operating profit, but it is still not enough to foot the total interest bill," he said.

O'Flaherty warned that should tariffs fall, this could see the shortfall increase to as much as R412 billion.

He said Eskom was renegotiating its contract with mining giant BHP Billiton to supply power to its Hillside and Bayside aluminium smelters. It was hoped this would avert further losses on long-standing pricing arrangements linked to embedded derivatives.

The company had successfully done so on the contract to supply the Mozal smelter in Mozambique, which resulted in a R9 billion book-keeping loss in the previous financial year, after the global economic crisis saw aluminium prices plummet.

The new terms yielded a R2.3 billion profit in Eskom's 2010 financial results, O'Flaherty said.

On the two remaining smelters, Eskom was trying to convince Billiton to agree to a price equal or just below its average industrial tariff, the so-called "mega-flex" rate.

Anything less than the generating cost, as is the case at present, would be a deal breaker.

"We certainly hope that in this financial year we can renegotiate these contracts," he said.

Makwana confirmed Eskom had no plan in place beyond 2017 - when Kusile will be commissioned - to increase capacity to cope with rising demand, which is forecast at an additional 50 gigawatt.

O'Flaherty added that the company was not prepared to commit to expenditure, and therefore borrowing, it could not afford, because it felt strongly it needed to maintain its credit rating.

"You cannot run a commercial operation where you cannot pay your interest bill and you keep borrowing to pay your interest bill.

That is not a going concern and that is not a situation we as Eskom will allow ourselves to get into."