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Loss-making Eskom’s going concern status questioned

Current liabilities exceed assets by R20 billion.

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.

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Everything in life has a price and cader deployment is particularly expensive.

True ANC stuff. At least R20 000 000 000 gone missing and nobody knows anything and nobody is in jail.

Won’t be surprised if a big portion of that money is floating around in dubai

Sell 50% of Eskom to the Chinese.

Why on earth would they buy it? They’ll let it collapse and get it for free

The Chinese are not stupid!

The Chinese will light a fire under the unions, they won’t last long.

R20 billion missing i.e. misappropriated in other words stolen and not one person in jail. The best is we are still asking for loans. How is this possible?Only in SA. If I were the Chinese I would just pull the chain.

Just stating the obvious again: Deregulate power supply urgently, this thing is a huge risk to our country

Six different boards and a mess. How can we trust the 7th???.
Like flogging a dead horse.

Some much was said about the “new board”, but nothing has changed. There seems to be a contest between it’s new chiarman, Mabusa and the minister of police, Cele, to see who can outhat each other.

Eskom is a business with morally and ethically bankrupt managers and employees, appointed by a morally bankrupt political party, with intellectually and ethically bankrupt supporters, that sells an unaffordable product to financially bankrupt municipalities. Now the leaders of this bankrupt political party expects us to believe that this whole bankrupt mess can be turned around by the bankrupt managers with a new plan.

In a democracy, the status of infrastructure and service delivery can never be more than a reflection of the mindset and level of sophistication of the average voter. The average voter is running down the street with the loan-shark on his heels.

Good point around the municipalities. Will they ever be in a position to pay for their future use of electricity? Nevermind settling outstanding debt.

NOT A GOING CONCERN! Imagine if I opened a business and asked the bank to continuously bail me out. It means the business has failed!

OLX!

Privatise it – float it on the JSE and offer 60% of the equity to the public.

The manner in which it can be done is to make it part of the “Tax free investment scheme” with a limit of up to, say, R100K. Make the dividends, in specie preferably, totally tax free for the first 10 years, and any capital gains exempt from tax for the first 10 years with year 10 becoming the base year going forward, otherwise no one will invest.

Also exempt Eskom from complying with the current BBBEE in order to employ adequately qualified people.

Given enough interest and patriotism; loads of it, who knows, it could just work.

“Only invest in a business that can be successfully run by a monkey, for some day it will be run by a monkey.” Warren Buffet.

True – but if we don’t we’re up a tall tree without a ladder.

Anyway maybe the ” long-tailed, dry-nosed primates” can be enticed to go back to the jungle and leave the corporate zoo to the trained clowns.

Are you implying that all BBBEE professionals are NOT adequately qualified? Wow, the more things change the more they remain the same. With that kind of attitude (black is unqualified/incompetent and white is qualified/competent) the govt has more reasons to stringently enforce BEE. Check the financial performance of JSE-listed companies that are more than 90% white led to see that incompetence is colour blind. Ill-conceived foray into foreign markets by the likes of Woolies, Brait, Steinhoff, Old Mutual, price collusion by construction companies that has now disseminated most of them (of course you will blame govt for this self-inflicted pain).

There’s no doubt there’s endemic corruption both in the public and private sector but to reduce to a particular race group is clutching at straws.

All areas of society will have corruption. There is a growing perception though that some parts of society are slower to act once it is uncovered. Generally in private companies once fraud has been exposed they get rid of the implicated people, in public companies it seems to take longer, if ever. Even in some of our political parties it seems to take very long. It’s not that it happens, it’s how you react to it, how quickly and how severe.

Foray into foreign markets will get them fired and maybe jailed if they committed fraud….quite correctly.But they cannot go to treasury with a begging bowl for constant bail outs and to fund ongoing theft and corruption.We all know who is running Eskom into the ground….

The basic fact is that the majority of SOE management is either unqualified for the job, inept or linked to corruption in one or other way, and the dismal performance testifies to that. Whether this is as a result of BEE actions or cadre deployment would be a matter to be researched, again by someone independent and qualified to do the work. One thing though is evident beyond doubt and that is that over the last two decades things have deteriorated massively and unless they change and proven, properly qualified people, in numbers that are economically sustainable, are appointed, the situation will continue to deteriorate to a point that the whole country will have failed, or risks becomgoing a bargain basement takeover target for predatory powers lurking in the wings. Another truism, is that no-one ever in financial distress and in the clutches of the financial system anywhere, has achieved economic solvency by borrowing themselves into deeper and deeper debt. South Africa seems to have not learnt this lesson. We are becoming economic slaves to foreign influences, which is the piper that will demand payment in full whatever the cost, to the country and it’s peoples. One only has to see the evidence in a country like indebted Greece, which has had to sell off national infrastructural assets, in a vain attempt to stave off total meltdown. South Africa deserves better.

There are very few electrical engineers left in the country. The guys that used to keep the lights on have left the country to greener pastures. Look at the roll of black professional engineers and you will be shocked at the numbers … simply not enough of them!

We have a serious skills shortage in this field

The ANC fought for who knows how long against apartheid with end goal to nationalize EVERYTHING. So privatization ( just to be nationalized again? ) is out of the question. They would rather run everything into the ground before admitting their infirmity. This dire situation CAN’T be turn around…we have big big problems.

“current liabilities exceed current assets by R20.6 billion” and they are considering “expressing doubt” – lets set all you fancy CA’s straight, when you are R20 bil !! in the tank you are so far beyond broke that you can never, ever be rescued (remember broke is just zero, not minus R 20 bil) – the cadres received, not quite 25 years ago a thriving, vibrant, effective utility, providing, at a small profit, the cheapest electricity in the WORLD. R20 bil is also the number that is thought to be wasteful and irregular spending. No need for a CA here, my matric accounting can figure this out. Lets hope for some orange overalls in the near future for these fools

What’s baffling me is the proud announcement of eskom that +/-22 % of necessary funds for the next year has been obtained – it is announced as if it is a gift without taking into account that it has to be paid back plus interest thereon, it does not matter if it is long or short term loans but it must be paid back –whilst eskom is overstaffed by +/- 22500 incompetent staff received fat salaries for doing nothing and at the same time dishing out electricity to bankrupt municipalities and also paying for overstated capital projects at the same time, how do they think will they ever be able to get themselves out of this self-inflected financial mess other than government guarantees and just higher tariffs. Would be interesting to see the balances of the accounts of our neighbour countries where eskom “export” electricity to – are they paying their accounts or are they also part of eskom’s cash flow problem.

How nice what the bastards stole equals the difference. thanks guys.

If any business principles were used and I was the bloke doing the irregular expenditure then – let’s say after the first R100M – my boss will be like “Hey Japie! Come and explain what you did with that R100M!” If it was R1Billion his secretary would have to call the medics to revive him. But R20Billion! How do you spend that without being called to the boss’s office?

R20 billion from 2012 is R9 million a day including Saturday and Sunday!!!

I thought my wife could waste money but this is in a class of its’ own.

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