Eskom can’t light the end of its own dark tunnel – Outa

In a press release commenting on state-owned power producer Eskom, the Organisation Undoing Tax Abuse (Outa) was damning in its assessment, calling the parastatal a “floundering entity” that taxpayers will inevitably have to prop up and rescue yet again.

Ronald Chauke, Outa’s portfolio manager for energy, said Eskom’s Integrated Report for 2018’s reported loss of R2.3 billion for 2017/18 financial year, irregular expenditure of R19.6 billion, and an admission that the Kusile and Medupi power station projects were now even more over both their budgets and deadlines was cause for concern.

He also criticised financial gearing rising from 68% to 72%, and “a plan” for the utility to pay its way out of debt by increasing borrowing to R600 billion – with the inevitable prospect of further price hikes.

It all meant that “there’s not much light at the end of this tunnel”.

Chauke said, however, that the new attitude of rooting out corruption at Eskom was to be welcomed.

“Outa welcomes the clean-up headed by Eskom’s new team headed by chairman Jabu Mabuza and chief executive Phakamani Hadebe, particularly the indications that their investigations into finances are going back years.”

Eskom had 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,” said 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.”

They were referring to the disgraced Gupta-linked former CFO Anoj Singh, who 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 R9.425 million for the year. We fail to understand this,” said Chauke.

Another controversial former executive, former acting chief executive Matshela Koko, was at work for just six weeks of 2017/18 before being suspended and eventually departing. He was paid R6.683 million for that year, it was revealed.

As for another “national embarrassment”, according to Outa, former chief executive Brian Molefe, he hadn’t yet repaid the part of the money already received from his R30 million early pension payout by the end of the 2017/18 financial year.

The new Eskom team was also still trying to recoup the interest from R902 million paid to McKinsey.

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

Capital expenditure was to be cut to R45 billion over the next five years, which saved a welcome R55 billion but indicated Medupi and Kusile (R72 billion to go) wouldn’t be finished in that period. However, debt was due to expand from the current R387 billion to R600 billion within four years.

This indicated borrowing for operating expenses and repaying debt, said Outa.

“The irregular expenditure means R19.6 billion 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 irregular expenditure on that scale points to deliberate, systemic manipulation of finances and procurement. This was not accidental,” said Chauke.

And consumers would have to “pay for this mess, again”.

Their statement concluded with an analysis of energy regulator Nersa’s price determination for the future, with Outa warning that consumers must brace themselves for another “astronomical price increase request. Our cost of living is becoming increasingly unaffordable because of deliberate brazen theft at Eskom over the past decade,” said Chauke.

Municipal debt to Eskom had increased by R4.2 billion to R13.6 billion, as municipalities continued to break debt agreements. Soweto had a dismal payment rate of 15% and arrears of R12 billion, 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%.”

The NGO said the parastatal would continue to face risks as a going concern, with “a potentially irreversible debt spiral that will ultimately need to be buttressed by taxpayers’ money in the future”.

Outa said it supported 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.”

Meanwhile, lobby group Life After Coal said the escalating costs of Medupi and Kusile and rising coal costs showed Eskom had made a mistake with such further investments in fossil fuel generation that damaged the environment.

It called for urgent, big interventions to phase out “old, expensive, and non-compliant coal-fired power stations, and to stop building the last over-priced units at Kusile”.

They said Meridian Economics’ November 2017 report reached the “unavoidable conclusion” that Eskom “is still spending vast amounts of capital on a power station construction programme that South Africa does not need and cannot afford”. It found that decommissioning three stations and curtailing Kusile could lead to savings of between R15 and 17 billion – without affecting security of supply.

“Urgent steps must be taken to restore Eskom’s financial health. Ideally, it should be transformed into an organ of state that promotes clean, healthy, affordable energy for everyone – becoming the owner of significant renewable energy assets in the interest of all, of cheap, clean electricity for South Africans, including support for local and community ownership of renewable energy facilities.”