Eskom reveals billion rand losses in annual financial results

Eskom as a stand-alone company revealed a loss of R4.6-billion on Monday, when the utility reported its annual financial results for the 2017/2018 financial year.

The Eskom group — which includes entities such as its engineering arm Rotek and its captive insurance company Escap — reported a loss of R2.6-billion.

The company’s irregular expenditure, identified under the terms of the Public Finance Management Act (PFMA), rose to just under R20-billion. This is up from R3-billion in the previous year.

This was after the utility’s new board ordered that spending as far back as 2012 be placed under the microscope.

“It’s been a function of us shaking this cupboard so hard, that all the skeletons are coming out,” said Eskom chairman Jabu Mabuza.

“We are not able to tell you today that the all the skeletons have come out. We will continue to shake this cupboard. There may be more.”

Over R7.5-billion of irregular expenditure was identified in the years prior to 2018, while a further R6.5-billion was identified as having taken place over a year ago.

According to Eskom around 60% of these matters are due to administrative non-compliance, with R10-billion awaiting condonation from the national treasury.

As a result of failure to comply with the PFMA, Eskom received a qualified audit for the year.

The bulk of the irregular expenditure — or R6.5-billion — came from modifications to contracts in the procurement process, according to the company’s acting chief financial officer Calib Cassim.

Under the law, if a modification on a contract takes place, where the deviation is R15-million or 15% of the value of the contract, Eskom is required to report this to the national treasury.

“Effectively it meant that R6.5-billion should have been reported to national treasury and that was not done,” he explained.

The second largest amount contributing to irregular expenditure, or R4.8-billion, related to sole-source contracts, he continued. If Eskom wants to procure from a sole source or provider it needs upfront permission from treasury.

The almost R1-billion recovered from consulting McKinsey has not been included in these figures.

The work to clean up its procurement procedures was ongoing said Cassim, and Eskom would implement ways to improve its systems and processes for supply chain management. These would include, where possible, the introduction of automation to reduce the impact of human intervention he said.

The extent of the PFMA breaches did trigger covenants on certain loans that Eskom holds with banks and development finance institutions, he added.

“We have engaged with the necessary lenders and obtained waivers from them before the release of these financials … so that issue has been dealt with,” said Cassim.

The company’s external auditors, SizweNtsalubaGobodo, noted that there was a material risk to the company’s status as a going concern.

Although the group’s earnings before interest tax depreciation and amortisation rose by 21% to R45-billion – driven largely through savings – it is having to pay out increasingly large amounts of money towards debt repayments. Its finance costs rose from just under R29-billion in the previous year, to almost R32-billion.

But according to Cassim there were two important processes that would be completed within this financial year that would bring more certainty over whether Eskom could continue as a going concern.

Firstly, the national energy regulator of South Africa (Nersa) would make an announcement in September, on how to phase in the R32.7-billion tariff claw-back that Eskom was recently awarded.

Secondly, Eskom was on the verge of making another tariff application under the multi-year price determination (MYPD) framework set out by Nersa. The MYPD application would be for the upcoming three years noted Cassim, as opposed to the most recent application, which was only made for one year.

By February next year he said, Eskom expected that the decisions on both these processes would provide much-needed certainty. “We believe that having that certainty together with our cost focus we will be able to address the going concern emphasis of matter come March 2019,” said Cassim.

We make it make sense

If this story helped you navigate your world, subscribe to the M&G today for just R30 for the first three months

Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

Related stories


Already a subscriber? Sign in here


Latest stories

What comes after the ANC?

We need to reimagine South Africa without the ANC and if we do not, we will either live with false hope or the country’s crisis will intensify

Police fail parents who babies died in alleged negligence incident,...

A lost police case docket and a hospital failing to report alleged medical misconduct adds to parents’ grief after losing twins.

‘A Still Life’ goes to root of the connection of...

An homage to selected dying trees, ‘A Still Life’ provides viewers with an opportunity to consider a moment of connection between humans, trees and the natural environment

OPINION| Black writers and publishers are South Africa’s ‘linguistic orphans’

The challenges we face in the world of scholarly and leisure reading and writing are not unique to our country but it is crucial to overcome them if we want to be as good as we look in our Constitution

press releases

Loading latest Press Releases…