Eskom says cutting its costs, or eliminating irregular expenditure which has soared to R19.6 billion, won’t save it from financial meltdown. It’s going to be up to you, the consumer, to pay.
That’s because the corporation might soon not even have enough income to cover its debts … and it wants to increase its debt ceiling from R387 billion to R600 billion.
This stark message emerged yesterday from the power utility’s annual financial statements presentation in Johannesburg.
At the function, it was admitted that the company’s auditors had warned that its financial position was so precarious that it was in real danger of not being able to continue as a “going concern”.
Acting chief financial officer Calib Cassim said cost containment alone would not solve Eskom’s financial position, even though the bloated organisation had increased its net profits from R37.5 billion to R45.4 billion – mainly due to containment of operating expenses.
“It is therefore important that the price of electricity should migrate towards cost reflectivity,” said Cassim.
That means it will want more money, in the form of electricity tariffs increases, from its customers.
The National Energy Regulator of South Africa recently awarded R32.7 billion to Eskom to reclaim some of its expenses from previous years over the next three years – from consumers. Eskom is challenging this in court because it wants R66 billion.
Irregular expenditure rose to R19.6 billion from R3 billion due to the extension of the verification and clean-up scope going as far back as December 2012.
Ted Blom, a partner at Mining & Energy Advisers and Energy Expert Coalition, said consumers were being made to pay for Eskom’s irregular expenditure.
“That’s a lot of irregular expenditure and, in my experience, that number seems a bit low,” Blom said. “The problem is there are a bunch of inexperienced people running the most complex organisation in the country. It’s been coming for a long time and is a recipe for disaster.”
According to energy expert Chris Yelland, “what we’re seeing now is the deterioration of all of Eskom’s major financial metrics”.
“This is the legacy of the past board, the past CEOs, the Singhs, the Molefes, Kokos, Ngubanes, the Browns of this world, and Sean Maritz. They were responsible for the financial year and the new board is in the process of cleaning up the mismanagement and maladministration of the previous years.”
Eskom CEO Phakamani Hadebe, speaking at the presentation at its Megawatt Park headquarters, said the note of concern by the external auditors in their review for the six months ended September 30, 2017, may cast significant doubt on the group’s ability to continue as a going concern.
Yelland said: “Eskom has to try to reduce debt because the cost of servicing the debt is going to rise above its revenue generation. It cannot be allowed to continue on its projected path.”
A significant factor in Eskom’s dire financial position is municipal debt.
Over the past financial year, invoiced municipal arrears debt (including interest) increased by R4.2 billion (an increase of 44%); invoiced Soweto debt (including interest) increased to R12 billion (payment level of 15%) and other overdue debt amounted to R2.2 billion, including R1 billion for international customers.