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Johannesburg - According to new interim CEO Phakamani Hadebe, Eskom's poor leadership sparked the crisis that led to its financial woes.
Eskom announced its results for the six months to end-September on Tuesday. This showed the power utility's going concern status is indeed in question at the end of the cycle. Eskom's interim revenue declined by 2% to R95.5bn. Its after-tax profit plunged by 34% to R6.3bn from R9.5bn in the previous comparable period.
Hadebe said Eskom ended up with financial problems and a liquidity issue because of poor leadership, adding that the power utility faced considerable financial challenges in the last six months. Concerning liquidity, Eskom reached the point where funders felt they could no longer engage with the company, Hadebe said.
"But I am confident that Eskom can turn the corner," Hadebe said. However, he emphasised that Eskom can't simply keep on borrowing to stay afloat.
The interim CEO said the poor financial results were a product or a result of an operative model that was "not so sufficient" in dealing with the key challenges Eskom faced.
"If we can deal with key challenges, Eskom will be in (a) total different league."
Camel's back
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. This could have been avoided, he said.
Secondly, the corporate governance breakdown led to the liquidity issues, because lenders had lost trust in the state entity.
Hadebe said Eskom would also engage energy regulator Nersa about tariff increases in a transparent manner, as Eskom's mounting debt is not the answer for the future sustainability of the state utility.
New Eskom chair Jabu Mabuza said the new board has started to form the foundation of restoring credibility.
"It will not be easy. But as collective we have the skills. Our mandate is non-negotioable."
Review of contracts
Interim chief financial officer Calib Cassim said Eskom has put a recovery plan in place, and has already reviewed 80% of all its contracts. The state utility's Board Audit and Risk Committee will now review 160 contracts over R1bn.
He said the plan is on track to address the weakness auditors raised. "Irregular expenditure can be expected at year end, but should not result in an audit qualification," he said.
Both Cassim and Hadebe reiterated irregular expenses did not imply fruitless and wasteful expenditure.
Eskom will now have to convince auditors at the end of the year that it is a going concern, he said. It was forced to announce its long-awaited interim results on Tuesday, after its bonds faced suspension from the JSE.
The bourse warned the state utility it would delist Eskom's bonds if it does not release its interim financial report within the three months stipulated by its debt listing requirements.
Worries about going concern
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.
The auditors said they were not convinced the company was out of the woods, and cautioned users about Eskom’s abilities going forward. Its external auditors issued an unqualified review conclusion, but with an emphasis of matter regarding Eskom’s going concern position.
Eskom's flat revenue is attributable to the 2.2% price increase for 2017/18 and a 1.9% drop in sales volumes, exacerbated by escalating municipal arrear debt. Because of the qualified audit, access to funding was restricted.
Hadebe said the government has to prioritise the resolution of governance and liquidity concerns affecting Eskom, and managing liquidity is a key focus area.
Eskom's revenue was R96bn, down by 2%. The state utility's liquid assets declined by 64% year-on-year to R16bn, as opposed to the R44bn of the previous year.
'Teetering on edge of insolvency'
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.
Its latest report to its shareholder representative, Public Enterprises Minister Lynne Brown, estimated that the utility would have a R5bn negative liquidity position by the end of January. It also emerged in a Mail & Guardian report that the utility had to raise R20bn and R12.5bn last week to meet its immediate cash flow requirements.
Hadebe 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."
The power utility's debt was downgraded by ratings agency Moody’s on Friday.
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