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Eskom's dire financial position likely to get worse before it improves

Jul 24 2018 06:45
Sibongile Khumalo

Eskom’s difficult financial position is likely to deteriorate further before stabilising, the troubled power utility reported as it unveiled its annual results, which showed reduced income from most operations.

"The next year will remain tough before things start stabilising, but I can assure you that we are going to continue cutting cost and reporting that cost," said Acting Chief Financial Officer Calib Cassim.

Ballooning irregular expenditure, as well as a decline in finance cost and net cash from operations, are some financial issues bedeviling the state-owned power utility, which is in the process of reversing the damage caused by poor governance over the last few years.

The financial results for the year ended March 31, 2018 were the first full year of reporting since a new board took over in January.

Cassim said the firm was in the process of reviewing its business model and cutting down costs associated with irregular spending.

Some of the progress announced by the firm in its bid to cleanse itself included:

  • The departure of 10 senior executives implicated in maladministration or corruption;
  • Eleven criminal cases opened against employees, of which five cases include nine senior executives;
  • Finalisation of 628 of the 1 049 disciplinary cases logged since April 2018, leading to 75 dismissals;
  • Investigation of irregular supplier contracts;
  • The conclusion of over half of the 230 whistle-blowing cases, with disciplinary processes related to 67 cases underway;
  • Action taken against 25 staff doing business with Eskom; and
  • Lifestyle audits of senior management.

Global consulting firm McKinsey recently announced that it had returned a fee of R902m it was irregularly paid, for work it did for Eskom.

Eskom Chief Executive Phakamani Hadebe said a criminal case had been opened against McKinsey, adding that it was up to the investigating authorities whether to prosecute the firm or not. Hadebe said Eskom was still pursuing McKinsey for interest on the fee.

The amount McKinsey returned was not included in the current financial reporting.

Tariffs to the rescue?

Eskom stated that the impact of the 5.2% tariff increase, allowed for the 2019 financial year, was not expected to improve the firm’s financial situation.

It said approximately 3.0% of the tariff increase had to cover the growth in Independent Power Producers expenditure, leaving only 2.2% to cover Eskom's own operating expenses. 

"The impact of the low tariff increases for 2018 and 2019 will continue to place a strain on Eskom's financial position, with an expected further deterioration in financial ratios before there can be an improvement."

The power generator is also faced with a R4.2bn debt owed to it by municipalities, with arrears debt invoiced to Soweto users totalling R12bn.

"Eskom continues to face significant financial and liquidity challenges in the short to medium term, mainly due to the high debt burden," the financial statement read. 

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