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Eskom's new management sparks hope, but concerns remain - OUTA

Johannesburg - Eskom’s latest interim financial results sparked hope for a recovery inside Eskom, despite the deep concerns they highlighted, the Organisation Undoing Tax Abuse (OUTA) said on Wednesday.

The civil rights group said years of mismanagement have left Eskom with massive debt and a compromised liquidity position. But the recent turn of events after the new leadership was appointed has sparked new hope, with the new board apparently determined to clean up.

“Eskom’s interim financial results were, as expected, not encouraging, given the fact that auditors expressed a matter of emphasis on the going-concern status of Eskom due to the compromised liquidity position,” said OUTA chief executive Wayne Duvenage.

The new executives did not sugar-coat the bad news, he stated.

Duvenage said Eskom is still navigating stormy waters as reflected in the state capture allegations unfolding at the parliamentary portfolio committee on public enterprises inquiry.

The organisation was further encouraged by comments from Eskom’s new chair Jabu Mabuza on Tuesday, who said during the results announcement that the new board would find solutions to the liquidity situation and strive to restore redibcility and integrity through a culture of good corporate governance.

The new Eskom board was appointed two weeks ago in a weekend shakeup. Phakamani Hadebe was then also appointed as the new interim CEO at the institution.

Duvenage said despite the two-month delay in the release, the interim results were better than the 2017 Integrated Report with its R3bn in irregular expenditure. He found the honesty of the new management team in the face of such a mammoth task refreshing.

OUTA said Hadebe’s “frank admission” that Eskom’s situation is the result of poor leadership and failure to abide by the prescripts of good corporate governance is encouraging.

Commenting on the McKinsey situation, OUTA said it welcomes Eskom’s admission that it is pursuing the recoupment of the R1.6bn paid to McKinsey and Trillian.

The interim results stated that the McKinsey contract “has been cancelled and the board is pursuing recovery from McKinsey in order to minimise the loss to Eskom”.

“On this note, McKinsey management has previously indicated their intention to return these funds to Eskom and OUTA urges they do so, sooner rather than later,” Duvenage said.

Also in the statements is an admission that the three-month guarantee granted to the Guptas’ Tegeta Exploration & Resources was in breach of the Public Finance Management Act. “This is in sync with OUTA’s charges filed against Eskom’s previous CFO Anoj Singh on this matter last year,” Duvenage said.

OUTA said it was pleased with the promise that the board is dealing with executives facing allegations of serious corruption and other acts of impropriety. “We hope that criminal charges will be laid accordingly.”

Reacting to Eskom’s reviewal of 160 contracts over R1bn, OUTA also urge Eskom to ensure that this includes reviewing the so-called evergree” coal supply contracts with suppliers. “This equates to billions of rand each year and requires scrutinising.”

On Wednesday Eskom’s interim results showed that electricity sales were down 1.9%, and that municipal arrear debt to Eskom was R12.2bn, up from R9.2bn year-on-year. Total overdue debt to Eskom was R19.4bn (including municipalities), up from R16bn, with Soweto arrears increasing by more than R400m.

Net profit after tax dropped to R6bn from R10bn. Eskom’s debt is now R367bn, a R34bn increase from a year ago. Gearing was at 70% and this was not sustainable, Duvenage said.

But OUTA believes the new board and management are faced with a challenge to overcome what it called the unnecessary interference and lack of leadership displayed by Minister of Public Enterprises Lynne Brown.

Brown has refused to resign, despite several calls to take responsibility. 

The organisation concluded that ultimately Eskom’s operating model and capital structure has to be reviewed – including the cost drivers  of the state utility. 

On Tuesday Hadebe said what has broken the back of the camel "which is Eskom" was firstly last year's qualified audit report, which was primarily due to irregular expenditure, and poor leadership. Eskom will now have to convince auditors at the end of the year that it is a going concern, he said.

Interm CFO Calib Cassim said the results were delayed because auditors were concerned about Eskom as a going concern, and Eskom was eager to engage to ensure that it was not handed a qualified audit again.

Fin24 reported in November that the power utility’s poor governance had left it teetering on the edge of insolvency, with only R1.2bn of liquidity reserves expected to be in hand at the end of November. Hadebe confirmed at the announcement that all the reports were correct.

He admitted that the R20bn is a concern. "Engagements on the R20bn has started. We are confident that we have R20bn in our account to meet the requirements." 

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