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Unpacking Eskom’s R19.6bn of irregular expenditure

Acting CFO Calib Cassim explains what the irregularities, which date back to 2012, relate to.

NOMPU SIZIBA: State-owned power utility Eskom released its annual results for the year ended March 2018. The revelations were concerning to say the least. The company announced that it suffered a net loss of R2.3 billion. It reflected that there was some R19.6 billion worth of irregular expenditure, which dates back to as far as 2012. The company is heavily indebted to the tune of over R360 billion and has to borrow money to pay off its debt instalments. Eskom’s acting CFO Calib Cassim joins us on the line now. What do these numbers speak to?

CALIB CASSIM: Good evening to you and your listeners. From an earnings perspective, you can seen that we have grown from R7 billion to R45 billion on the back of cost saving initiatives. However, as we come below the earnings line, we see that the growth in depreciation and finance costs have escalated to give us a loss of R2.3 billion FY 2018.

NOMPU SIZIBA: The irregular expenditure of R2.3 billion dates back to 2012. Can you unpack this number for us? You’re reporting for the year ended March 2018, so there would naturally be interest in whether there was irregular expenditure for this specific year. If you say it dates back to 2012, how much of it dates back to that time?

CALIB CASSIM: Firstly, as part of the clean-up and addressing the qualification from March 2017, what we’ve identified as irregular expenditure, which was incurred in this financial year of ’18, is R5.5 billion. There is a second element of R6.5 billion, which affects more than FY ’18 and we haven’t got to that particular stage where we’ve been able to split the R6.5 billion between the current years it was reported and previous years. And then the amounts that we’ve identified that was definitely linked to prior to FY ’18 was R7.5 billion.

It’s important to highlight that as part of the clean-up and processes we have implemented, to align to both our and Treasury’s requirements, many of the adjustments and enhancements have literally been embedded in the last quarter of  FY ’18. So we are expecting the trend for actual expenditure to decrease in FY 2019. But we are still doing some clean-up relating to the historic years, which means some of those items will come out in FY 2019 results.

NOMPU SIZIBA: The irregularities that you speak of, what do they relate to? Is it mostly in the area of tenders or is it other areas as well and has anyone been criminally charged following your investigations?

CALIB CASSIM: Yes, this is effectively relating to procurement compliance in terms of Eskom’s own internal policies and that of National Treasury. Some of the big items, for example, are that R6.5 billion relates to deviation in contracts that exceeded, for example, R15 million as a deviation, which requires Eskom to get permission from Treasury’s procurement office for those deviations and Eskom has not done this in the last two years. 

The second issue was R4.9 billion relating to what we call sole-source procurement, where we are required to request permission from Treasury to pursue this type of procurement. We have not done this, we should have gone out on open tender. The last issue to highlight is that there was R3.2 billion relating to tax certificates in particular, foreign suppliers who have a footprint in SA, which was not obtained at the time of concluding those contracts, which means as we incurred expenditure against those contracts, it is deemed irregular from a reporting perspective. 

The interview continues below, listen to the podcast for more revelations from Eskom’s results. 

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Were these dodgy figures used by Eskom in its representations to Nersa for tariff increases?

IF, they can misspent nineteen billion rands ($1 407 billion) why should we entrust them with another tariff increase. How confident are we that now they will deploy funds responsibly. IF, you keep throwing good money into a leaking toilet, you should not expect not to find the smell unbearable. NERSA should not approve another increase unless we can be assured that the money will be spent responsibly and with relevant accountability.

So Eskom was supposed to be the flagship of how things will be done on SA and driven by the anc (another new corruption) as a demonstration of how it should work. The result is that it is bankrupt, corrupt and ended up almost sinking the country. Surely by now anc you realise that your policies don’t work?? I mean surely??
I fact nothing driven by the anc(another new corruption) has worked !!

“we have grown from R7 billion to R45 billion on the back of cost saving initiatives” – For every R100 spent in 2008 the money now spent on electricity has increased to R451 in 2017 (i.e. 4,5 times). Any running business with this time of increase would have grown profitably. But Eskom is bankrupt and requires more LOANS to keep on running. The man has got the nerve to say that the increase was due to cost savings! The compounding effect of the 10 years of tariff increases has hurt every one and will keep on having a detrimental effect on the economy in the future. The only solution is to privatize Eskom and SAA. All the future bailout money saved could be used for the development.

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