Based on its financial statements for the year ended March 31, Eskom auditors SizweNtsalubaGobodo expressed doubt about the power utility’s ability to continue as a going concern.
Eskom on Monday reported a net loss of R2.3 billion for the group that includes the power utility and other subsidiaries. This however reflects the positive impact of good results from other subsidiaries.
On a stand-alone basis the power utility however reported a loss of R4.6 billion.
SizweNsalubaGobodo further points out that Eskom’s current liabilities exceed current assets by R20.6 billion.
This news comes as unions are considering wage offers of at least 7% for the current year, which is well above the inflation rate.
The auditors further qualified Eskom’s financial statements, saying that Eskom did not have adequate control systems in place to identify, investigate and record all irregular, fruitless and wasteful expenditure and losses due to criminality.
This means that over and above the massive R20 billion irregular expenditure that Eskom reported, it might identify similar amounts in future.
At the presentation of the results Eskom chairperson Jabu Mabuza said the utility’s new board and management was “shaking so hard” that the skeletons are all falling out.
He however pointed out “we do not know what we do not know”.
Mabuza said the board was disappointed that it couldn’t avoid a qualified audit, but was only appointed to turn Eskom around in January and had a mere 69 days at the helm before the end of the reporting period.
He said it is clear that Eskom cannot be cleaned up overnight, but a lot of progress has been made.
Phakamani Hadebe, who was only permanently appointed as Eskom CEO in May, said Eskom’s 2017 corporate plan, which is Eskom’s roadmap, was aimed at complying with issues like employment equity.
It failed to focus on Eskom’s unsustainable debt levels despite the fact that the utility was borrowing money to pay its debt. He said there was seemingly an attitude that “things will sort themselves out” and the plan provided for Eskom’s debt to increase from the current R389 billion to R600 billion over four years.
This despite the fact that Eskom was, and remains, unable to service the current debt payments.
Hadebe said the perception that Eskom’s funders only withdrew when the utility’s financial statements were qualified last year, is untrue. He said funders have been defecting over the past five to eight years as Eskom’s performance deteriorated.
He said apart from the qualified audit, Eskom was plagued by corruption and mismanagement, had governance challenges and investor sentiment was negative.
In the reporting period, cash from operating activities dropped by 18% to R38 billion.
This is no surprise in light of the fact that it had ten different CEOs and six different boards in the last ten years, Hadebe said.
He said the new board would submit a new one-year corporate plan to government in September, which will be aligned with the compact (agreement) with government as the shareholder.
Acting CFO Calib Cassim pointed out that expenditure that was incurred irregularly does not necessarily mean there was no value for Eskom or that the expenditure was corrupt. He said 60% of the reported R20 billion irregular expenditure relates to administrative issues like suppliers whose tax clearance certificates were outstanding.
In terms of the Public Finance Management Act (PFMA) public entities are obliged to either recover or condone irregular expenditure. Cassim said R10 billion of the R20 billion identified irregular expenditure is in the process of being condoned.
Cassim said in the next year the focus would be to keep Eskom’s head above the water without putting too much pressure on government. The next year would still be difficult, but thereafter Eskom should be stable.
Hadebe said under the new guard Eskom’s liquidity and operational performance has improved. A lot of progress has been made in improving governance and control systems, he said.
The new Eskom leadership has intensified the process of cleaning up the corruption and improving governance and control systems in an effort to restore trust in the entity, Hadebe said.
It has succeeded in improving earnings before interest, tax, depreciation and amortisation (Ebitda) by 21% to R45 billion and will reduce operating expenditure as well as capital expenditure to achieve financial stability. The utility will complete its Medupi and Kusile projects, but will reschedule some network projects, he said.
It hopes to increase demand through deals with identified intensive users and reduce outstanding debt. Eskom disclosed that outstanding debt from municipalities increased by R4.2 billion to R13.6 billion and outstanding debt from clients in Soweto totalled R12 billion with a payment rate of below 15%.
Eskom’s financial statements show that of the 52 arrear municipalities that have concluded payment plans with Eskom, only 28 fully adhere to the plans.
Four months into the new financial year Eskom has managed to secure 22% of the required R72 billion funding for the year.