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Eskom Board Chairman Jabu Mabuza

Eskom posts poor financial results

Eskom has posted poor R19 billion in irregular expenditure for the 2017/18 financial year which has triggered the Portfolio Committee on Public Enterprises to request the electricity giant to Parliament to brief members on the latest financial results.

The power utility released its 2017/18 financial results [July 23, 2018] in which it reported a 44% increase in municipal debt amounting to R4.2 billion and a loss of R2.3 billion.

Eskom confirmed they will be no bonuses for staff this year.

In a statement of Monday, Committee Chairperson Lungi Mnganga-Gcabashe said their members will continue to engage with Eskom to address its challenges and restore public and investor confidence.

“The power utility has in the past months come under scrutiny because of the financial and operational performance it experienced. The committee will make time in its programme to invite Eskom, so that members are briefed on the latest financial results,” said Mnganga-Gcabashe.

Democratic Alliance (DA) Shadow Minister of Public Enterprises Natasha Mazzone  said these losses are no doubt the result of corruption, mismanagement and the bloated staff complement at the utility, saying Eskom’s latest financials once again reiterates the need for a complete turnaround strategy for South Africa’s energy sector.

“The DA plans to introduce a Private Members Bill aimed at dismantling Eskom and creating a separate public entity which will govern and manage the country’s electricity grid and transmission lines. The remaining part of Eskom, responsible for generation, will be privatised and compete on an equal footing with other entities, including renewable companies, for generation capacity,” said Mazzone.

If Eskom were to collapse, said Mazzone it will have serious consequences for the economy and ordinary citizens.

“The reality is that Eskom is facing collapse and it will continue to stumble from one crisis to the next until such reforms are implemented. It is clear that the new dawn has simply remained a slogan at the power utility as there has been very little change,” added Mazzone.

 Below read financial results media statement

Eskom delivers continued improvement in operational performance despite financial and governance challenges facing the company

 SHORT-TERM TURNAROUND TARGETS

  • Improving the EBITDA margin to at least 35% by growing revenue,
  • Managing liquidity, including the recovery of arrears debt,
  • Investing in cost-plus mines to benefit from cheaper coal,
  • Restricting capital expenditure to R45bn per annum for the next three years,
  • Continuing to reduce or contain operating expenditure,
  • Reducing reliance on debt financing in the medium term, and
  • Reviewing the business model.

 

Eskom continued to deliver improved operational performance in the financial year ended March 31, 2018, despite the financial and governance challenges facing the company.

Medupi Unit 5 achieved commercial operation on April 3, 2017, after completing the performance, reliability and compliance tests.

Kusile Unit follows by achieving commercial operation on August 30, 2017, and Medupi Unit 4 on November 28, 2017.

The three units have added total installed capacity of 2 387MW to the national grid.

Kusile Unit 2 and Medupi Unit 3 have been synchronised to the national grid and  Eskom expects it to become fully operational within six to nine months.

Eskom remains confident that 2022/23 will complete the new build programme, barring delays because of contractor performance, industrial action or other issues outside our control.

Plant availability improved marginally to 78% compared to 77.3% in the same period last year. They also kept planned and unplanned outages within the targeted range of 10% each.

The company’s Group Chief Executive Phakamani Hadebe said: “Despite satisfactory progress being maintained on the new build programme, and improved operational performance for the current financial year, Eskom continues to face significant challenges in the short to medium term.

Revenue levels remain unsatisfactory, and the tariff increase of 5.2% for the current financial year further compounds the impact of the 2.2% tariff we received last year and is, therefore, expects not to lead to much improvement.

“Levels of arrears debt, especially from municipalities, remain unacceptably high.

In the short term, our focus will remain on cost efficiencies to support financial sustainability,” added Hadebe.

Eskom is undertaking a strategy review, expects to be complete by September 2018.

The aim is ensuring that the company has an integrated strategy that addresses not only its current challenges, but also ensures that the future direction is clear and focuses on stabilising the organisation, by cleaning up governance issues and stopping the bleeding, and thereafter re-energising and growing the business.

Eskom’s Acting Chief Financial Officer, Calib Cassim, said the company’s financial health has deteriorated in recent years due to lower electricity demand, low tariff increases, and above-inflation cost increases.

They further expect the financial performance to deteriorate before improving.

EBITDA increased from R37.5-billion to R45.4-billion mainly due to the containment of operating expenses.

Eskom posted a net loss of R2.3-billion (2017: R0, 9-billion profit) largely due to a substantial rise in depreciation and net finance cost.

Depreciation increased to R23-billion from R20-billion as a result of new power plants being put into commercial operation.

Finance cost, after capitalisation, increased to R26-billion compared to R19.6-billion in the same period last year.

This was mainly attributable to increased and reduction of borrowings cost capitalise as new power plants being brought into commercial operation.

“Cost containment alone will unfortunately not solve Eskom’s financial position. It is therefore important that the price of electricity should migrate towards cost reflectivity,” said Cassim.

Eskom chairperson Jabu Mabuza said, “despite achieving good operational performance, Eskom experienced a tumultuous year, characterise by liquidity issues coupled with a myriad of governance-related challenges which mainly stemmed from the previous financial year’s qualified audit”.

“Eskom has suffered an absence of ethical leadership at the highest level for some time, but we aim to rectify that as a matter of urgency. We believe this is one of the principles underpinning the stabilisation of Eskom and to set it up for sustained success, while fulfilling both its commercial and developmental mandate,” he said.

Eskom received a qualified audit opinion for the year under review as the external auditors could not rely on the process in place to ensure the completeness of irregular expenditure reported, fruitless and wasteful expenditure and losses due to criminal misconduct.

Irregular expenditure rose to R19.6-billion from R3-billion recorded previously due to the extension of the verification and clean-up scope to go as back as far as December 2012.

Mabuza said: “The qualified audit must be looked at within the perspective of our intensified efforts to clean up which has in the medium term surfaced further irregularities. While we are disappointed that a qualified audit could not be avoided, we are comfortable that great strides have been made in our key focus areas with a number of initiatives being set in motion to address our key challenges in a sustainable manner.”

“Our challenges cannot be fixed overnight, as the damage was also not done overnight. We have to take some short-term pain to achieve the long-term gains and the Eskom of the future we all want to see,” Mabuza said

Hadebe said: “We are committed to turning around this institution. A strategic review is being undertaken to re-energise, shift direction and set a firm foundation for Eskom’s growth by strengthening Eskom’s financial position and balance sheet, reviewing the business model to respond to global energy industry changes, growing the business into new markets and products, improving trust and restoring labour, investor and stakeholder confidence as well as reviewing the IPP and coal strategy.”

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