Appalling extent of Eskom damage emerges

Consumers will pay for years for Eskom’s failed governance as the extent of the damage from looting starts emerging.

23/07/2018 09:44:35

Appalling extent of Eskom damage emerges

The Eskom Integrated Report for 2018 gives a picture of a floundering entity with a loss of R2.3 billion for 2017/18, irregular expenditure of R19.6 bn, Kusile and Medupi even more over both budget and deadline, gearing rising from 68% to 72%, a plan for the utility to pay its way out of debt by increasing borrowing to R600bn, and the prospect of further price hikes.

There’s not much light at the end of this tunnel.

“OUTA welcomes the clean-up headed by Eskom’s new team headed by Chairman Jabu Mabuza and CE Phakamani Hadebe, particularly the indications that their investigations into finances are going back years,” says Ronald Chauke, OUTA’s Portfolio Manager for Energy. Eskom reported on the departure of dozens of those implicated, including 10 executives, and the opening of criminal cases, including against executives.

“Any criminal cases rely on action by the criminal justice authorities, which we hope will be forthcoming. We will be watching those cases and we hope civil claims will be added,” says Chauke.

“We welcome the renewed commitment to consequence management, but the generous golden handshake to at least one executive casts significant doubt on the sincerity of this.” Disgraced former CFO Anoj Singh was paid R2.5 million to leave because of “discrepancies” in disciplinary action against him. “Singh, whom we regard as a key architect of the capturing of Eskom, took home R9.425m for the year. We fail to understand this,” says Chauke.

Another disgraced former executive, former acting CE Matshela Koko, was at work for just six weeks of 2017/18 before being suspended and eventually departing. He was paid R6.683m for that year.

Another national embarrassment, former CE Brian Molefe, hadn’t repaid his illegitimately obtained R30m pension by the end of the 2017/18 financial year. The new team is still trying to recoup the interest for that R902m from McKinsey. We don’t know what’s happening with those very expensive coal contracts. We don’t know how much Eskom hopes to recover from the looting. We have no idea why Medupi is going from the overpriced R109bn spent so far to an astonishing R145bn to finish, or Kusile from R125bn to R161bn and never-ending deadlines for both.

“It is critical for Eskom’s new leadership to start quantifying the cost of the corruption,” says Chauke.

Capital expenditure is to cut to R45bn over the next five years, which saves a welcome R55bn but indicates Medupi and Kusile (R72bn to go) won’t finish in that period. However, debt is due to expand from the current R387bn to R600bn within four years: this indicates borrowing for operating expenses and repaying debt.

The irregular expenditure means R19.6bn was spent outside the prescripts of basic public finance management legislation, not including any unauthorised or fruitless or wasteful expenditure. “While Eskom’s team said that the irregular expenditure included unreported items from as far back as 2012 and did not necessarily mean it was wasteful expenditure, we believe that irregular expenditure on that scale points to deliberate, systemic manipulation of finances and procurement. This was not accidental,” says Chauke.

Consumers will pay for this mess, again.

The R32.7bn RCA award is expected to start kicking in from April 2019, although NERSA has yet to say over how many years. Eskom plans to bring a three-year Multi-Year Price Determination (MYPD4) soon, for the annual increase in April 2019.

“Consumers must brace themselves for an astronomical MYPD4 price increase request. Our cost of living is becoming increasingly unaffordable because of deliberate brazen theft at Eskom over the last decade,” says Chauke.

Municipal debt to Eskom increased by R4.2bn to R13.6bn, as municipalities continuously break debt agreements. Soweto has a payment rate of 15% and arrears of R12bn, despite another 50 000 smart and split meters installed during the year.

Eskom wants to increase its sales – OUTA suggests dropping the prices – but doesn’t explain how 215 519 more households were connected last year but overall sales and revenue dropped by 1%.

Although Eskom’s liquidity has improved slightly, it still faces significant risk as a going concern. This is not helped by the decreasing sales, the expense of Medupi and Kusile while generation capacity exceeds demand, and the failure to recover this capital expenditure from operating revenue.

“This makes us concerned about a potentially irreversible debt spiral that will ultimately need to be buttressed by taxpayers’ money in the future,” says Chauke.

OUTA supports the new management’s determined efforts to tackle the corruption and understands this is a mammoth task. But the public is tired of paying for it.

OUTA is a proudly South African civil action organisation, that is purely crowd funded. Our work is supported by ordinary citizens who are passionate about holding government accountable and ensuring our taxes are used to the benefit of all South Africans.