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Parliament very worried about Eskom's R19.6bn irregular expenditure

Jul 23 2018 16:38
Khulekani Magubane and Marelise van der Merwe

Parliament’s portfolio committee on public enterprises on Monday expressed deep concern over the rate at which Eskom’s irregular expenditure had ballooned.

The power utility announced its annual financial results for the year ending in March 2018 on Monday morning. Irregular expenditure amounted to R19.6bn.

Eskom chair Jabu Mabuza said this was a sign that the entity was lifting the lid on irregular spend that had occurred in previous years.

According to National Treasury, irregular expenditure is any expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation. This legislation includes the Public Finance Management Act (PMFA), National Treasury regulations and other guidelines, which exist to ensure that departments and entities procure goods and services efficiently, cost effectively and transparently.

Mabuza told reporters on Monday that the irregular expenditure pointed to procurement safeguards being flouted as far back as 2012, where private interests were able to manipulate the governance and leadership of Eskom to score lucrative contracts.

Challenges

Chairperson of the portfolio committee on public enterprises Lungi Mnganga-Gcabashe said in a statement that the R19.6bn in irregular expenditure, among other challenges, prompted the committee to continue engaging with Eskom "to address its challenges and restore public and investor confidence".

"The power utility has in the past months come under scrutiny because of the financial and operational performance it experienced. The committee will make time in its programme to invite Eskom, so that members are briefed on the latest financial results," said Mnganga-Gcabashe.

According to the annual financial statements, the financial year ending in March 2018 was characterised by challenges including a qualified audit opinion for that period, prompted by the irregular expenditure information and in terms of the PFMA.

"[This was also due to] the many allegations of financial mismanagement against senior officials and a myriad of other issues related to lapses in governance processes and other internal controls," the annual financial statement said.

Breaches

The reported irregular expenditure resulted mainly from breaches in procurement regulations, Eskom said.

These included contracts being incorrectly awarded, based on a sole source rather than a single source basis, or where an open tender process should have been followed; or contracts being awarded without following approved internal tender processes. 

In other cases, prescribed threshold limits were exceeded without the required approval from National Treasury, or the appropriate tax clearance was not always received, where Eskom did not obtain tax clearance certificates for foreign suppliers without a local establishment "because of an uncertainty in the interpretation of the requirement". 

There were also instances where consulting contracts were entered into on a risk-based remuneration model that should have received National Treasury's approval. 

Eskom was in the process of requesting condonation from National Treasury for these issues, the utility said. It had tightened processes and controls to prevent recurrence of similar incidents and the relevant employees had received training.

Where appropriate, disciplinary action had been taken, Eskom said. 

The statement also gave updates on well-publicised issues such as allegations that the interim Group Chief Executive Matshela Koko had a potential conflict of interest with regards to his stepdaughter’s holding in Impulse International; allegations that an early retirement agreement between Eskom and former Group Chief Executive Brian Molefe was irregular; the procurement process for enlisting the services of McKinsey & Co and sub-contracting the Gupta-linked Trillian; and the approval of a three-month guarantee on behalf of Eskom to Gupta-owned Tegeta; among others.

It had taken investigative and/or disciplinary action on all these matters, it said.

The power utility said in an effort to improve governance as a measure to restore the credibility and integrity of the group and address sustainability issues, government intervened by appointing the incumbent board in January.

"These challenges, among others, were widely stated as the biggest contributors to the deterioration of confidence in Eskom by financial markets which constrained the group’s access to funding, leading to a liquidity crunch and consequently raising serious concerns regarding the long-term financial viability and going-concern status of the group at the interim reporting period ended 30 September 2017," the financial statements read.

Other challenges dogging Eskom include a 44% increase in municipal debt amounting to R4.2bn from local government authorities around the country, a 5.23% tariff increase from the National Energy Regulator of SA - Eskom had requested 19.9% - and a loss of R2.3bn in its latest results.

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