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Eskom CEO Dan Marokane disclosed that Eskom has lost key accounting skills following five years without any salary increases and the removal of its bonus system.
“That is the result of an employee-unfriendly environment,” he said after the announcement of the utility’s financial results and audit outcomes for 2023/24.
During the reporting period the group was without a permanent CEO and Calib Cassim, the CFO, had to act as interim CEO.
The results came months after the legislated due date because of, among other things, difficulty in quantifying Eskom’s exposure in a sophisticated scheme involving Eskom employees in the issuing of fraudulent tokens on its online vending system.
This was one of several mechanisms used to steal electricity from Eskom. In total, electricity theft cost the utility R23 billion in the reporting period.
The numbers
Eskom reported a pre-tax loss of R25.5 billion, compared to R34.6 billion in the previous financial year. Due to the write-back of a deferred tax asset, necessitated by the unbundling of the National Transmission Company of South African (NTCSA), the after-tax loss increased to R55 billion, more than double the previous year’s R26.1 billion.
This is however an accounting matter and does not reflect on any cash flow.
Revenue amounted to R295.8 billion (FY23: R259.5 billion), which is an increase of 14%. This is lower than the 18% increase in tariffs in the same period, because sales dropped by 3%. Eskom ascribes this to the 329 days of load shedding and consumers using alternative sources of generation.
With the load shedding came a diesel bill of R34 billion as Eskom tried to keep the lights on with extensive use of its open-cycle gas turbines (OCGTs).
Marokane was at pains to show that Eskom has in the first half of the current financial year turned the corner. Operationally, plant performance has improved to such an extent that the country has enjoyed more than 250 days without load shedding.
The diesel bill is R12 billion lower and Eskom projects a return to profitability to the tune of R10 billion for the full year.
Dark clouds gathering
The dark clouds are however gathering on the horizon with rapidly increasing municipal debt. At the current trend it is expected to reach R110 billion at the end of March.
Cassim warned than unless Eskom gets cost-reflective tariffs and a solution is found for escalating municipal debt, all the benefit from government’s R254 billion debt relief package will be reversed.
He said the R76 billion Eskom received as part of the package in the reporting period eased liquidity and “unlocked the positive performance spiral.”
Cassim said thanks to government support, Eskom’s balance sheet has been stabilised, and the group was able to invest cash from operations in capital expenditure and working capital.
Total debt decreased from R424 billion at the beginning of the period to R412 billion at 31 March.
Eskom’s debt must, after the three-year debt relief period, of which one year is left, be limited to R250 billion to be sustainable.
New projects will require extensive funding through a combination of on-balance sheet funding and partnerships with external parties.
“We must generate sufficient operating cash flows to fund most of our capital expenditure requirements, without further leveraging the balance sheet. This is highly dependent on achieving an adequate tariff path, resolving the municipal arrear debt challenge and achieving cost efficiencies.”
Tariff increase
Energy regulator Nersa is currently considering Eskom’s application for a tariff increase of 36% next year, 12% the following year and 9% in 2027/28. This has been met with great resistance – even Minister of Electricity and Energy Kgosientsho Ramokgopa says electricity is becoming unaffordable.
The regulator previously indicated that it would announce its decision on 20 December, but it is not clear if that will happen. Nersa chair Thembani Bukula told Moneyweb on Tuesday that it will try to do so, but still has to process additional information it requested from Eskom.
Eskom received a qualified audit report due to incomplete or inadequate financial records and inadequate responses to previous years’ qualifications, which continued into the reporting period.
Among other things, the auditors emphasised material concern about Eskom’s ability to continue as a going concern.
Tighter controls
In addition, seven reportable irregularities were identified – most of which have been ongoing for several years.
Marokane said Eskom is working hard to improve the inadequate internal controls the auditors once again pointed out.
He told Moneyweb that many of the “local purchase orders” generated at power stations fell short of the procurement standards. After identifying this as a vulnerable spot, rules were changed to ensure power station managers have oversight of such transactions – with another level of authorisation subsequently added.
He acknowledges that a culture of ignoring controls and exploiting gaps in them “was not nipped in the bud” and vows to “make accountability personal”.
(This article first appeared in Moneyweb)
