Eskom ‘technically bankrupt’ as debt hits R400 billion
Public watchdog the Organisation Undoing Tax Abuse (OUTA) says it welcomes Parliament’s Public Enterprise report on Eskom which implicates several executives and former ministers.
However, it said that the power utility’s financial results indicate a company that “is technically bankrupt”.
South African lawmakers referred the names of three former chairmen of the group to law-enforcement agencies after they found the individuals conducted themselves unethically and possibly criminally during their time at the producer, Bloomberg reported on Wednesday (28 November).
Zola Tsotsi, Ben Ngubane and Zethembe Khoza, together with former chief executive officers Brian Molefe and Matshela Koko, are among the names that parliament’s portfolio committee on public enterprises is asking the Directorate of Priority Crime Investigation to focus its probe on, it said in a report.
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In June last year, the committee resolved to probe governance, procurement issues and the financial sustainability of the cash-strapped company that produces almost all South Africa’s power.
Eskom is struggling with high debt and declining demand as it takes steps to emerge from multiple scandals involving graft and mismanagement.
President Cyril Ramaphosa has pledged to stamp out corruption since taking over from Jacob Zuma in February.
That has included replacing directors at a number of state companies including Eskom, which ratings companies have identified as a key risk to Africa’s most-industrialised economy.
This is the second report released this month that refers Eskom board members and executives to prosecutorial authorities.
A study by Fundudzi Forensic Services, which the National Treasury contracted to investigate the appointment of McKinsey & Co to advise Eskom and state logistics company Transnet, and coal procurement from a company controlled by the Zuma-connected Gupta family, also recommended criminal investigations against Molefe and Koko, among others.
The committee said the former chairmen and executives “reasonably ought to have known or suspected” that their failure to report the flouting of governance rules relating to some contracts “may constitute criminal conduct”.
Former public enterprises ministers Lynne Brown and Malusi Gigaba were “grossly negligent in carrying out” responsibilities as the representatives of the sole shareholder in Eskom.
‘Eskom is technically bankrupt’
Outa said it remains deeply concerned that Eskom does not have a sustainable business model or a comprehensive financial plan to claw itself out of the debt hole it is currently in.
While the appointment of Mr Calib Cassim as Eskom’s permanent chief financial officer may offer some stability and comfort that the rot will stop, Outa said that it’s the power utilities’ declining revenues which inhibit it from turning into profitability or controlling its ever increasing operational costs.
“If Eskom was a private company, it would either be under business rescue or in liquidation as we speak, given the reality that Eskom is technically bankrupt,” said Ronald Chauke, Outa’s energy portfolio manager.
While presenting its 2018/2019 interim results, Eskom revealed that its 2007 debt of R40 billion has swelled to R419 billion, and is estimated to exceed R600 billion in the foreseeable future.
In addition, Eskom’s huge staff complement including fixed term contractors has increased to 48,628 in 2018 from 47,658 in 2017, costing South Africans R29.5 billion in March 2018, Outa said.
It said there appears to be a lack of urgency and no holistic and integrated long term strategy to help with the turning around the power utility and ultimately lower prices for the public.
While Dr Jabu Mabuza’s nine-point plan is commendable in addressing immediate problems, the 2035 strategy he promised the public earlier this year is still needed, it said.
“The nine-point plan is merely fire-fighting by the Eskom executive who should have by now developed a comprehensive future roadmap that will take the utility to a financially sustainable path,” added Chauke.
Outa noted that the energy availability factor (EAF) was 75.01% in September 2018, below Eskom’s target of 78%. This further dropped to 74.2% in October 2018.
The impact of this decline in EAF, it said, has resulted in the increased utilisation of emergency resources such as open cycle gas turbines which are diesel-powered and have already set Eskom back R572 million to date and is projected to cost up to R1 billion by the end of financial year.
Profit before tax has declined from R8.9 billion (Sept 2017) to R1 billion on 30 September 2018, while sales volumes are also down by 0.8% and revenue was up by 2.7% on the back of tariff hikes.
“This massive decline in profit, is a precursor for huge losses that one can expect at the end of the financial year,” said Chauke.
Outa said it is also concerned about the 25% increase in six months of municipal arrear debt (including interest) to R17 billion (March 2018: R13.6 billion) and this is probably the biggest issue facing the SOE right now.
“It is imperative that Eskom develop and publicise a long term plan that includes a sustainable business model that will contribute to South Africa’s economic growth and provide financial relief to its consumers, the body said.
With Bloomberg
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