Eskom professes financial stability
The upbeat assessment contradicts Malusi Gigaba’s statement on the power utility
Power utility Eskom on Wednesday put a shine on its financial results, saying that it was not in distress, contradicting Finance Minister Malusi Gigaba’s statement last week that the government was looking at ways to provide it with "soft support".
Chief financial officer Anoj Singh said that "Eskom has not made any application for any kind of support for Eskom as an entity." He admitted, however, that the R20bn cash Eskom had in its account was the "liquidity buffer", below which it could not go without getting further support.
Eskom said it had increased revenue 7.9% to R177bn in the year to March; its earnings before interest taxes depreciation and amortisation (ebitda) rose 14.4% to R38bn.
Singh said profitability had improved because less was spent on diesel for emergency power as the fleet performance improved and coal cost increases were controlled.
Public Enterprises Minister Lynne Brown said this indicated that "Eskom was in a better financial position than it was a year ago".
But given less emphasis in the presentation was that profit before tax dropped 85%, from R8bn to R1bn, and net finance costs rose 82%, from R8bn to R14bn, over the year, indicating a less rosy picture.
Eskom also remains under pressure from falling demand at a time when new assets are coming on stream, absolute debt and debt costs continue growing and it needs to increase sales.
Overall sales declined 0.2% with large decreases in the industrial (3.7%) and agricultural (5.7%) sectors.
As bonus payments for executives are calculated mainly using ebitda, former CE Brian Molefe received R2m and Singh R1.87m.
Power utility Eskom claims it is not in financial distress and has not asked the government for assistance, CFO Anoj Singh said on Wednesday, contradicting Finance Minister Malusi Gigaba’s statement last week that the government was looking at ways to provide Eskom with "soft support".Gigaba’s statement was alarming because it is widely known Eskom will have to repay hefty debt on the building of new coal-fired power stations, which are well over budget, even as a slowdown in domestic electricity consumption squeezes its revenue.
Singh said the utility’s auditor, SizweNtsalubaGobodo, had not raised a going-concern issue with its accounts. Interim group CEO Johnny Dladla said the auditor had qualified its audit opinion because Eskom did not have adequate systems in place to identify irregular expenditure. The two "reportable irregularities" that the auditor reported involved the case of suspended acting CEO Matshela Koko, who stands accused of a conflict of interest after his stepdaughter was awarded millions in contracts; and the case of the payment of a R30m pension award to Molefe.
Koko was to face disciplinary action, said chairman Zethembe Khoza. At the presentation, Eskom’s executives were questioned on an investigation into Koko; the favourable treatment of the Gupta family owned Tegeta Mining & Resources on prepayments and an arbitration settlement; and R495m paid to a Gupta-linked company, Trillian Capital Partners as part of a R1.4bn contract with global management consultancy McKinsey & Company.
Dladla said McKinsey’s services had been suspended. McKinsey said it had withdrawn from Eskom by mutual agreement. At issue is that money was paid directly to Trillian as McKinsey’s subcontractor.
Rachel Grant, spokeswoman for McKinsey, said that Trillian had never been McKinsey’s subcontractor and it was investigating why Trillian was described as a subcontractor in a letter written by one of its partners in February 2016.
"That letter was inaccurate and should not have been written. Our investigation is reviewing how and why the letter was written," she said.
Arrear debtors grew at a faster pace than revenue, surging 14.5% to R32.4bn.Despite several write-offs of residential debt in Soweto and repeated attempts to arrange payment terms with defaulting municipalities, 99% of debtors in Soweto were classified as overdue and 62% of large
power users and municipalities. Only a third of municipalities
are fully honouring payment agreements with the utility.