Eskom Megawatt Park, courtesy of Eskom's Supplementary and Divisional Report 2013

In The News South Africa

Eskom to review thousands of questionable contracts

JOHANNESBURG, January 30 – South African power utility Eskom on Tuesday said that it would review thousands of contracts as well as emergency procurements made over the past two years in its bid to claw back some of the monies that have been swindled from the company.

Eskom has of late been plagued by scandals of dodgy contracts which have defrauded the power utility of millions of rand, including a R1.6 billion payment  unlawfully made to Trillian Capital and global consultancy McKinsey.

The power utility reported on Tuesday that its revenue for six months ending 30 September 2017 fell by two percent to R96 billion and cash from operating activities dropped 30 percent to R22 billion, with level of debt over R300 billion.

Eskom’s liquid assets had declined to R9 billion from R30 billion a year previously due to tariff increases of only 2.2 percent and a 1.9 percent decrease in electricity sales volumes, offset by cost containment measures.

Eskom acting chief financial officer, Calib Cassim, said that the company’s 2016/17 financial statements were qualified based on completeness of irregular expenditure reported in terms of the Public Finance Management Act.

Cassim said that a recovery plan, monitored by board audit and risk committee, was in place to review 160 contracts over R1 billion and 5,110 contracts under R1 billion. These contracts respectively represent at least 80 percent of contracts that Eskom has with contractors.

Cassim said that while interim results were released after a lengthy delay, there was a concern on utility’s liquidity as a going concern with investors and its auditors, SizweNtsalubaGobodo, were concerned that Eskom was not profitable.

“We remain positive that with the co-operation of the relevant participants, the funding plan can still be executed, albeit under challenging conditions. This will strengthen our liquidity and propel us towards positive cash flows,” Cassim said.

“We are committed to ensuring an improvement of our liquidity levels and restoring the positive lender and investor sentiment to unlock access to the markets.”

Cassim said that given the progress, funding was expected to be unlocked, although it would take time to improve the situation, adding that Eskom’s operating model and capital structure would be reviewed later.

 

Eskom chairman Jabu Mabuza on Tuesday said that he had met with Public Entreprises Minister, Lynne Brown, to agree on clear defining roles between the newly-elected board of the state-owned power utility and the department in a bid to avoid duplication.

There have been recent instances of mixed messages between the Eskom board and Brown, who represents the Eskom shareholder, where the power utility’s executives allegedly misrepresented facts about the state of the utility to the minister.

Eskom reported that its liquid assets had declined to R9 billion at the end of September 2017 from R30 billion a year previously due to tariff increases of only 2.2 percent and a 1.9 percent decrease in electricity sales volumes, offset by cost containment measures.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) of R30 billion, was slightly down from R32 billion in September 2016.

Net profit after tax declined from R10 billion in September 2016 to R6 billion in September 2017, with higher depreciation and net finance cost due to new build units coming online.

Mabuza said that the financial and governance challenges currently facing Eskom required quick and decisive action such as inculcating a renewed culture of good governance and entrenching financial and business discipline as a foundation to restoring the credibility and integrity of this institution.

“The board strongly believes that what underpins the stabilisation of Eskom is fulfilling our duty to improve trust and restore investor confidence in order to access financial markets and to re-establish the credibility,” Mabuza said.

“A critical part of restoring governance is defining a framework within which we as a board of Eskom can operate alongside our shareholder. We have discussed and agreed on a framework about where the duties of the board start, and where they end, where the duties of the minister and department start and where they stop. Our mandate is non-negotiable; we need to root out financial mismanagement and corruption at Eskom.”

Mabuza thanked the 47,000 employees of Eskom, saying that they continued to work hard and remain dedicated to keeping the lights on despite the reputational onslaught that faces the company, and also said the board had “complete faith” in interim chief executive Phakamani Hadebe.

 

Phakamani Hadebe, the interim chief executive of South Africa’s power utility Eskom, conceded on Tuesday that the state-owned company was facing “significant financial challenges” stemming from poor leadership, lack of proper corporate governance, and its weak capital structure.

“We are where we are because of poor leadership across the spectrum of Eskom. Decisions that were supposed to be taken were nor taken,” Hadebe said.

Speaking ahead of the release of Eskom interim results for the six months ending 30 September 2017, Hadebe said that the power supplier had performed well operationally, but that the company was in dire straits financially.

Hadebe said that the 2.2 percent tariff increase granted by the energy regulator in 2016, declining volume sales, an unqualified audit by external auditors, the escalating municipal arrears debt, and restricted access to funding had contributed to the financial challenges the power utility was facing.

The debt owed by municipalities to Eskom has risen by 33 percent, from R9 billion to R12 billion to date. Hadebe also said that Eskom will work closely with the energy regulator to find a price path solution in future.

Hadebe said that managing liquidity remained Eskom’s key focus area, adding that “the sustainability of Eskom cannot be maintained through borrowing”.

“When we took over 10 days ago, we were happy to find that the list of lenders, bankers and investors included the people that we know. But when we spoke to them, they made it clear that they cannot fund us unless we deal with corruption within Eskom. Those who are found wanting [on corruption] have to be out of Eskom as soon as possible,” Hadebe said.

“We have already said that government guarantees, although helpful, are not sustainable. We are developing a financial model to correct this.”

The power utility had been struggling to release its interim financials for three months until government appointed a new board and an interim chief executive. A permanent board will be appointed within the next three months.

– African News Agency (ANA),

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