Eskom counts R2.3 billion in losses as irregular spending blows up to R19.6 billion
Irregular spending at Eskom swelled to R19.6 billion ($1.5
billion) as South Africa’s state-owned power utility comes
under pressure to restore its credibility and improve its
finances.
Irregular expenditure, or spending incurred in contravention of
or not according to applicable laws, “has increased
significantly as a result of the cleaning-up exercise” at the
electricity producer that generates about 90% of South Africa’s
power, it said in a report released Tuesday.
The company and its auditors, SizweNtsalubaGobodo Inc, reviewed
all open contracts from April 1, 2015, for compliance with the
country’s Public Finance Management Act, Eskom said.
The business that’s facing declining demand for power amid
tepid economic growth has been at the centre of scandals
involving the financing of transactions and awarding of
contracts to firms linked to the Gupta family. They are alleged
to have used their connections with former President Jacob Zuma
to their benefit. Zuma and the Guptas deny any wrongdoing.
“The damage wasn’t done overnight, so cannot be fixed
overnight,” Chairman Jabu Mabuza, who was appointed in January,
told reporters in Johannesburg. “We will have to take
short-term pain.”
Eskom reported a loss after tax of R2.3 billion for the year
ended March 31 from a profit of R900 million 12 months earlier.
Sales declined 0.9%, while its gearing ratio, which measures
debt relative to equity, went to 72% from 68%, it said.
“Eskom continues to face significant financial and liquidity
challenges,” the company said. This is due to the “high debt
burden, low sales growth and increased finance costs. The
auditors raised uncertainty that may cast significant doubt on
the group’s ability to continue as a going concern.”
Chief Executive Officer Phakamani Hadebe, who started earlier
this year, has pledged to improve governance as the first step
in stabilizing the business. The company has opened 11 criminal
cases, five of which involve nine senior executives, he said.
Eskom will reduce non-essential positions among its workforce
of 48,628 people, and sees the optimum group-staffing level at
about 33,249 positions, which means it’s about one-third
overstaffed, according to its annual report.
Pay negotiations with labor that started two months ago
resulted in protests and power cuts after the utility said it
couldn’t offer an increase to workers. Eskom backed down and
has most recently tabled a three-year deal with raises of about
7% annually, compared with the current inflation rate of 4.6%.
Eskom depends on government support to service its R368 billion
of debt. It has raised 22% of the funds it requires this year,
the company said.
“Ultimately we have to decide about the future of Eskom,”
Hadebe said.
“We need to review the business model and see whether this
remains relevant. We need new growth markets and products for
us to grow this business as we move forward.”
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