Eskom’s procurement mess: R200,000 for a wooden-handled mop

 ·1 Nov 2020

Eskom chief executive officer, Andre De Ruyter has provided some insight into the corrupt practices at the state-owned power utility in an interview with the Sunday Times.

It comes after the group published its results for the financial year ended March 2020, on Friday (30 October), showing a net loss after tax of R20.5 billion, despite revenue of R200 billion.

Sales declined 1.3% year-on-year, hampered by capacity shortages and adverse economic conditions, it said.

Eskom cited significant operational and financial challenges – resulting in Stage 6 load shedding during December 2019, and further financial assistance from the government. The declining energy availability factor resulted in 46 days of load shedding.

De Ruyter told the Sunday paper that enforcing disciplined procurement processes at Eskom is a slow process. Enforcing disciplined procurement processes often resulted in allegations of corruption and wrongdoing from affected employees, he said.

“It is the favourite card to play when you expose people for being incompetent or not doing their job,” De Ruyter said.

Sources at Eskom told the Sunday Times that procurement processes at Eskom have been highly irregular, citing an example of the power utility having once paid R200,000 for a wooden-handled mop.

De Ruyter has stated that he is committed to fixing the company’s flawed procurement processes.

Further funding and outlook

Unpacking the financial performance on Friday, Eskom chief financial officer, Calib Cassim noted that there was an improvement in Eskom’s financial position owing to government equity support of R49 billion during the year and R56 billion allocated to FY2021.

Cassim indicated that cash from operations is insufficient to service Eskom’s debt commitments and therefore the support from Government was necessary. But the company cannot rely on government support for survival, he said.

Cost savings alone will not result in Eskom achieving long-term financial sustainability, as tariff have to migrate towards cost reflectivity, warned De Ruyter.

“In order to address our unsustainable legacy debt, we either have to rely on bail-outs funded by the tax-payer, or improve our financial situation by NERSA allowing Eskom to charge cost-reflective tariffs. Paying heed to the minister of finance’s medium-term budget policy statement, we believe the latter is best for Eskom and South Africa,” he said.

De Ruyter said that management has made significant changes to arrest its operational and financial decline, including cracking down on money owed to it by municipalities.

“We have implemented assertive collection strategies against the largest municipal defaulters, which has resulted in a 17% increase in payment levels from these customers during FY21,” De Ruyter noted.

“This is one of the key areas that require a concerted effort if Eskom is to embark on a sustainable course. Every consumer of electricity needs to pay for what they consume,” he said.

Power demand

Power demand was slashed during South Africa’s virus lockdown, which began on 27  March, Bloomberg reported.

Eskom has made progress in some areas including bringing new generation online and keeping coal costs from sharply increasing during the current year, De Ruyter said.

While Eskom executives stressed the need for cost-reflective tariffs to help pay down some of the debt of R484 billion at the end of March, “something extraordinary” in addition to higher prices needs to be done for the company to become sustainable, public enterprises minister Pravin Gordhan said in the presentation.

The utility “should not be a burden on the fiscus” and the government’s initiatives are designed to curtail its support, he said.

Around R200 billion of green financing is potentially available, although the underlying conditions are “very complex” and depend on a number of factors including carbon credits, De Ruyter said.

Eskom has sought low-carbon solutions to repurpose coal-fired stations scheduled for decommissioning and is exploring other measures in order to obtain better financing terms, Bloomberg said.

Read: Eskom loss tops R20 billion as capacity shortages bite down hard on sales

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