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Eskom still heavily reliant on debt - Acting CEO

Apr 24 2018 15:43
Lameez Omarjee

Cape Town – Eskom’s group’s operating profit margin (Ebitda) will have to improve to an appropriate level where it can not only service debt but fund growth of its operations, the portfolio committee on public enterprises heard.

Members of Eskom’s board, including deputy chair Sindi Mabaso-Koyana, acting CEO Phakamani Hadebe and acting CFO Calib Cassim briefed the committee on the utility’s annual performance and turnaround plan.

Hadebe told the committee that Eskom’s gearing is at 67%, which means it is still heavily reliant on debt. He said that difficult decisions will have to be taken to ensure the sustainability of the power utility for the future.

“Against its operational performance, the institution is not doing well.” He explained that corruption which had taken place has impacted the Eskom’s operational efficiencies.

The group’s Ebitda increased at 14.4%. This is relatively good, but low compared to similar utilities with levels between 35% and 42%. He said investors are concerned about whether Eskom can service its debt and if it can fund operations without borrowing.

Cassim explained that capital expenditure is being funded by debt. Cassim explained that since the appointment of the new board on January 20, investor sentiment has improved “substantially”. “We are looking to leverage on this in future,” he said.

But Cassim said the year ahead will be challenging financially as the power utility has to contend with low tariff increases granted by the regulator and municipal debt.

As for the group’s going concern status, Cassim expects the qualified audit opinion to remain for the next 12 months, until Eskom can demonstrate an increase in its Ebitda and address its cost base.

The utility plans to raise R72bn this year and repay R20bn. The remaining R52bn is capital expenditure. Cassim admitted that it will be a tight year ahead. Eskom reports to government and Treasury on a weekly basis.

Qualified audit opinion

The audit qualification Eskom received for its financials last year was related to its procurement process and documentation management. The auditor flagged R3bn in financial statements as not being a true reflection of irregular spend. Eskom is currently reviewing 6 000 contracts for compliance, 97% of the workload has been completed.

The power utility is working with National Treasury, which is holding Eskom accountable in terms of its procurement processes, Cassim explained. Part of the control processes being implemented is to introduce automation of the value chain to avoid “manual intervention” in processes.

Cassim added that financial irregularities relating to former exec Matshela Koko who failed to disclose a conflict of interest, as well as former CEO Brian Molefe’s retirement are to be closed and the impact they had on financials will be revealed in the interim financial report for the period ended March 31, which will be tabled in July following the Annual General Meeting.

Turnaround strategy

Mabaso-Koyana said that the final turnaround strategy of the company will be finalised by September 2018. Part of the areas to be addressed include securing consistent tariffs, as well as restructuring Eskom’s costs. “It has become clear that structurally something must change at Eskom,” she said.

During a question and answer session, Hadebe said that investors are reluctant to invest in coal. “Over time the number of funders willing to put money in coal is declining.” “At some stage we must look at business differently and diversify, or funders will not be willing to fund. We need to find those who are willing.” 

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eskom  |  phakamani hadebe  |  parliament  |  corruption
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