Eskom 2021/22 Annual Report; with Minister
Meeting Summary
In a virtual meeting, the Committee was joined by representatives of the Department of Public Enterprises, including Minister Pravin Gordhan, and members of the Eskom board, to receive Eskom’s annual report for the year 2021/22.
Eskom reported on key performance areas including the performance of plants and operating performance. Plant availability declined to 62.02% (2021: 64.19%), with unplanned load losses rising to 25.35% (2021: 20.04%) and planned maintenance at 10.23% (2021: 12.26%). On the governance front, it said fraud, corruption, sabotage and other criminal conduct had taken root within Eskom. Unless decisive action is taken to eradicate this type of conduct, it will continue to fester and see the downfall of Eskom with catastrophic impacts on South Africa. For the financial year under review, Eskom received a qualified audit opinion. Looking at financial performance, cash from operations remained insufficient to meet debt servicing and some capital investment requirements. To ensure long-term financial sustainability, Eskom’s capital and tariff structure must be resolved. Arrear municipal debt (including interest) escalated by a further R9.5b. Regrettably, very little progress was made by the political task team to deal with the top 20 defaulting municipalities. Other than municipal and residential arrear debt, only two large customers owe amounts in excess of R100 million were Transnet (R437 million) and EDM (R579 million, of which R350 million is in dispute).
Eskom said loadshedding is unavoidable until capacity of 4 000MW to 6 000MW is added to the grid.
The issue of the recent TV interview conducted by the out-going CEO was raised in the meeting. Members were concerned by the allegations made and called for a meeting to iron out the matters raised in the interview.
Members said Eskom had been beset by six years of unqualified audit opinions. A Member said that the comments and opinions made by the auditors showed that Eskom officials ran the enterprise as if it were a “spaza shop,”
They asked about the state of national disaster declared during the State of the Nation Address due to the energy crisis- Eskom needed something immediate and tangible, with support from government. Was there any other alternative for Eskom besides serious and aggressive privatisation?
Members asked for pointed answers on why the country was experiencing state six loadshedding currently. With winter looming, it was asked if there was a concrete plan to rebuild the coal stockpiles.
Other concerns raised related to municipal debt and solutions to deal with this to prevent it from worsening, water consumption at the power plants and unregulated procurement.
Meeting report
The Chairperson welcomed all meeting attendees, and acknowledged the presence of the Eskom Board, the Department of Public Enterprises, and their Minister. He allowed the Minister to make an opening statement and thereafter excused him as he had to attend a Cabinet meeting.
Minister opening remarks
The Minister made his opening statement and thanked the Chairperson for excusing him. He added that he would return to the Committee meeting as soon as the Cabinet meeting was concluded.
Minister Gordhan said that the meeting would focus mainly on the financial results of the previous financial year. There had been significant progress in certain areas, but other areas were still in need of work. He added that the board and management team had provided an outline of the results in the report, and the auditors would explain them in detail in their respective comments.
The Minister addressed the matter of a video clip that had been circulating on the day of the Committee meeting. He said it was a well-known and undeniable fact that corruption was one of the reasons why Eskom and many other government entities were in a vulnerable condition. The corruption had been committed by individuals for their own benefit. This had become the subject of what was known as the Zondo Commission. He said a distinction had to be drawn between individuals and their greed and search for improper or unjustified benefits through tenders and contracts. State capture might have ended, but the scourge of corruption was still rampant, and Parliament and the government would eradicate it.
In the context of the appointment of a new board at Eskom, chaired by the late Jabu Mabuza, Minister Gordhan said that a lot of work had been done to recover funds lost due to corruption during the state capture era. It was important for the chief executive officers (CEOs) of entities, including Eskom, to express their views, but to ensure they did not engage in public political debates. It was the responsibility of any CEO to keep their focus on their responsibilities and ensure that their jobs were done as proficiently as possible.
He told the Committee that many people had been reported to law enforcement authorities for their involvement in corruption. There had also been a number of investigations, arrests and trials that had been initiated. He added that suspicion and rumour had to be separated from actual evidence. Law enforcement agencies like the Special Investigating Unit, the Hawks and the National Prosecuting Authority had to be made aware of any evidence that had been presented.
Corporate governance required that the Eskom board look at the trending video clip, and then report back to Parliament with their deliberations. It was unfortunate that the country’s fight to eradicate corruption from state entities had been turned into unnecessary controversy.
Eskom Annual Report 2021/22
Board / audit, risk and compliance (ARC) committee remarks
Ms Fathima Gany-Ahmed, Eskom Board member, apologised to the Committee on behalf of Mr Mpho Makwana, the Board chairperson, who could not attend the meeting.
She said the audit, risk and compliance (ARC) committee, of which she was chairperson, had resumed office on 1 October 2022. To date, they have concluded 10 ARC meetings, with the peak being over December 2022, when the annual financial statements were approved just before Christmas. It had been a long journey for the business, with the auditors being Deloitte and the Auditor-General of SA (AGSA).
The issuing of the financial results had been delayed due to the late appointment of the auditors and challenges experienced between the handing over from the previous auditors to the current auditors. The testing of opening balances had resulted in a statement of prior year figures, and there were delays experienced in stock counts, particularly in the generation unit. The fair value calculations for derivatives and the effectiveness of hedges had to be recalculated, and were eventually outsourced to a consulting company to recalculate. Numerous findings and control deficiencies were emanating from the lack of compliance with policies and procedures.
Ms Gany-Ahmed said that the material finding was for the correction of hedges for the financial instruments previously alluded to. It had been a steep learning curve for the new auditors and Eskom. At the end of the financial year, the opinion expressed was qualified, based on the information disclosed in the financial statements. Material uncertainty relating to Eskom’s ability to continue operating was an ongoing concern. Following the reporting period, a new accounting policy for investigating corruption was established.
To highlight some of the ARC committee’s conclusions, she said they had found a need for expert financial, and technical skills and strong business partnering. The risk management systems and processes were adequate, but their effectiveness needed improvement. The compliance report required continuous support to ensure its application. Internal controls were sometimes inadequate, so compensating measures were implemented to change that.
Ms Gany-Ahmed said that consequence management had to be improved. There was a need for additional resources and skills in the forensics and assurance department. This department needed to improve in the execution of its mandate and be proactive in addressing control deficiencies. The combined assurance model showed that the monitoring and execution of controls at lower levels needed to be enhanced. Lastly, they were satisfied with the quality of the external audit.
She handed over to the executive management of Eskom.
Briefing by Eskom executive on annual performance
Mr Andre de Ruyter, Chief Executive Officer (CEO), Eskom, began by highlighting the key features of Eskom’s results.
The Energy availability factor (EAF) had been reduced to 62%, while there had been a steady increase in load-shedding, which had been a significant challenge. There has been an improvement in the performance of transmission and distribution. The group had synchronised one new unit and made an additional unit operational. The defects corrections process continued working on design defects. The particulate emissions remained a public health issue which had been noted. They had been able to reduce their headcount to just over 40 000, to improve their cost control efforts. Eskom had been keeping a close eye on key and critical skills to ensure that vacancies were filled as soon as possible, and that there were no skills shortages.
Mr de Ruyter said that the income statement regrettably did not tell a very good story, but did comment that there was a 51% improvement in the net loss after tax, which was R12.3 billion for the year. Sales volumes had increased, and this could be attributed to a significant improvement in demand following the recovery of the economy after the pandemic. The balance sheet continued to strengthen within limited constraints.
The presentation detailed Eskom’s key performance points.
Looking at the operating performance, generation performance, and plant availability declined to 62.02% (2021: 64.19%), with unplanned load losses rising to 25.35% (2021: 20.04%) and planned maintenance at 10.23% (2021: 12.26%).
Environmental performance:
•Relative particulate emissions performance improved
• Poor emissions performance at Duvha, Kendal, Lethabo, Matimba, Matla and Tutuka, mainly due to poor coal quality and poor performing dust handling
• Although Kendal emissions performance has improved, challenges continue. Criminal court proceedings postponed to February 2023
•Water consumption at power stations deteriorated slightly
• A total of 65 environmental legal contravention incidents were recorded (2021: 81), with 48 being water-related
People and society:
• Sadly, four employee and two contractor fatalities were recorded (2021: three employees and eight contractors)
• Group lost-time injury rate worsened slightly
• Headcount continued to decline to 40 421 (2021: 42 749), primarily due to natural attrition and voluntary separation packages
• Racial and gender equity continued to improve, with racial equity at professional/ middle management level at 81.68% (2021: 80.10%)
• Disability equity stable at 2.94% (2021: 2.93%)
• 97 947 electrification connections completed (2021: 106 669)
• CSI spend improved to R75.1 million (2021: R67.4 million)
• Achieved preferential procurement spend of 75.89% (2021: 64.51%)
Governance:
•Fraud, corruption, sabotage and other criminal conduct have taken root within Eskom. Unless we take decisive action to eradicate this type of conduct, it will continue to fester and see the downfall of Eskom with catastrophic impacts on South Africa.
• Eskom will enforce its policy of zero tolerance for corruption robustly to eradicate corrupt elements within the organisation and take appropriate legal action and apply consequence management as required
• Eskom embarked on a rigorous campaign to bolster integrity, ethics, compliance and governance programmes at Eskom, with a focus on rooting out fraud, corruption and sabotage.
The presentation outlined that Eskom achieved a qualified audit opinion for the year under review. Financial indicators improved significantly despite navigating a very challenging operating environment. Solvency ratios improved due to a recovery in operating cash flows, although cash flows remain inadequate to meet all debt servicing requirements on a standalone basis.
Investment in infrastructure
•Capital maintenance spend, relating to outage and refurbishment projects, increased to R11.1 billion (2021: R10.5 billion)
• Total capital expenditure has shown a declining trend since 2017 due to ramping down of projects as new build units are commissioned
• Liquidity constraints and procurement challenges have resulted in delays in the release of capital funds and procurement of long-lead items, leading to the deferral of projects, thereby exacerbating operational challenges
• Capital savings and enhanced management of the capital portfolio are being implemented to deliver improved capital efficiency
Debt
•Efforts to reduce Eskom’s debt burden were aided by government support, leading to an overall reduction in gross debt of R5.5 billion (1%▼)
• The strengthening of the Rand positively impacted foreign-denominated borrowings (approximately 40% of portfolio); derivatives held for risk management were similarly impacted by exchange rate movements to offset volatility
• Net finance costs remain the second largest cost after primary energy and increased (6%▲) mainly due to lower capitalisation as well as higher average cost of borrowing, despite a slightly lower debt balance
• Arrear municipal debt (including interest) escalated by a further R9.5 billion (27%▲)
• Payment level of 78% by municipalities, excluding metros (2021: 83%). Payment level of 46% for top 20 defaulting municipalities (2021: 53%)
• Regrettably, very little progress is being made by Political Task Team in dealing with the top 20 defaulting municipalities
Exploratory engagements underway with the City of Johannesburg and the City of Cape Town for the transfer of customers in certain areas
• Other than municipal and residential arrear debt, only two large customers owe amounts in excess of R100 million – Transnet (R437 million) and EDM (R579 million, of which R350 million is in dispute)
Financial outlook for 2023 financial year
•Financial performance expected to deteriorate
•Tariff increase of 9.61% awarded for 2023
• Biggest financial challenges remain lack of cost-reflective tariffs, poor operational performance, arrear municipal debt and Eskom’s debt
• Government debt relief solution expected to address one-third to two-thirds of Eskom’s debt; details and conditions to be announced in Feb 2023 Budget Speech
•Inadequate decisions by NERSA result in Eskom starting the financial year with a deficit; projected shortfall of R17 billion for 2023, which continues to place pressure on profitability as well as liquidity
•New Board appointed from 1 October 2022 to reposition Eskom in the evolving energy landscape, deal with immediate loadshedding issues, procurement challenges, the elimination of corruption and, most importantly, deliver on Eskom’s mandate of ensuring reliable electricity supply in the medium to long term
• Continued focus on Generation recovery plan and reliability maintenance recovery to improve plant performance, as well as initiatives under the National Energy Crisis Committee, including efforts to secure additional generation capacity
• Implementation plan in place to address findings from Zondo Commission, with key focus on civil recoveries; consequence management related to suppliers, former employees and former directors; in-depth risk assessment and review of policies and procedures to eradicate fraud and corruption
• Financial results will be positively affected by an improvement in operational performance
• Loadshedding is unavoidable until capacity of 4 000MW to 6 000MW is added to the grid
• Migration towards a cost-reflective tariff is necessary to recover our cost of capital. This, combined with cost efficiencies, improving repayment of municipal debt and reducing Eskom’s debt levels, will restore financial sustainability
See presentation for full details
Discussion
Ms J Mkhwanazi (ANC) supported that all Committee meetings should be in-person since virtual meetings had certain limitations and inconveniences. She suggested a deadline for the Eskom Board to report on the issues raised in the video circulated on social media. She had been made uncomfortable by the manner in which these issues had been raised, and suggested that they should be dealt with as soon as possible because of their sensitivity.
She asked the board members present to address the Committee on the factors behind the decline in sales of volumes. She raised the issue of municipal debt, and asked Eskom to furnish the Committee members with its strategies for dealing with this matter, considering that municipal debt had been increasing and had not been addressed. What lessons could be learned from the issue of municipal debt? What progress had been made by Eskom to collect debt owed by Transnet? What was the status of Eskom’s application for a diesel wholesale licence in an attempt to reduce the rising cost of diesel? Lastly, she asked for clarity on the progress Eskom had made with its appeal to SARS, and the turnaround strategy regarding poor coal quality and poor dust handling at several power stations.
Mr G Cachalia (DA) said that Eskom had had six years of qualified audits, and this was the reason why there was uncertainty on whether the power utility would continue or not. He also recalled how the CEO of Eskom had agreed when asked by the eNCA if Eskom had been a feeding ground for the ANC. He told the Committee about the CEO’s comments on the $8.5 billion negotiated at the COP26, and his concern over the watering down of governance. He said the board was unable to meet its own EAF target set within its own timeframe, and Eskom now reflected a higher net loss because generation had been down while usage had increased, despite attempts at reduction.
Mr Cachalia said that the income statement could not be improved through primary energy and procurement cost reductions. The CEO now reported to the chairperson and the shareholder representatives, which was at odds with cooperative governance. Under these impossible circumstances, the CEO and the chief financial officer (CFO) had done what they could to reduce debt levels. He asked for solutions to this issue, as it was also a concern. Would government be taking over most of the debt and if so, what would the conditions be? How would a broad national state of disaster help when Eskom's targeted approach regresses and requires the writing off of municipal debt, since partnerships had yielded next to nothing? How was Eskom planning on raising money on a roadshow, when its interest cover ratios and performance against governance had been dismal? How did they plan to boost ethics compliance in governance to root out fraud, corruption and sabotage?
He was not interested in hearing that consultancy services would be hired to develop a new culture, because Eskom needed something immediate and tangible, with support from government. He had noted an improvement in financial indicators like profitability and operational profit but added that it was clear that sales would not fuel its recovery since 40% of Eskom’s debt was in foreign denominated currency, which was a major concern. How was this going to be dealt with, given the Rand’s volatility, its current and future position, and the fact that cash from operations was insufficient to source capital investment? Was there any other alternative for Eskom besides serious and aggressive privatisation?
Mr S Gumede (ANC) said he agreed with Ms Mkhwanazi's stance on the comments made by Eskom’s CEO about the $8.5billion from the COP26. These comments created a lot of distortion. He said the restatement did not show a positive sign for Eskom's finances, and it would be better if there was no issue regarding this matter at the Committee’s next meeting. He was interested in knowing why the auditors had been changed and if there had been any particular reason for this.
He had expected that Mr de Ruyter would explain why the country was experiencing stage six loadshedding, and how long it would take for that to change. He raised the issue of water consumption, its financial impact and how much was being spent on water.
He referred to the governance improvement strategies presented by the chief financial officer, Mr Calib Cassim. He said that it was a positive sign that they would help close gaps in the behavioural issues by management and officials. Government's contribution may significantly reduce the repayment of Eskom’s debt, but this was dependent on the budget that the Minister of Finance would present in the annual budget speech. What was important was that any assistance to communities to ease the effects of load-shedding would help, because 2023 would be a very difficult year, as projections showed that there would be an estimated loss of R20 billion.
With the EAF declining to 52% and generation capacity steadily decreasing, and the increase of pressure by global fuel prices, Mr Gumede asked about Eskom’s state of readiness for matters of this nature. While diesel had proved itself to be a critical factor in electricity generation and it had been shown that funds had been made available for 2023, nothing had been said about 2024 and 2025.
Mr Gumede asked for clarity on the issue of municipal debt, where Eskom owed R45 billion, and called for a better strategy to address this. What were the returns on non-core assets that had been sold? He addressed Mr Cachalia on the issue of Eskom’s privatisation, and said that it would not be an option. He said that the number of employees who had recently died due to electrical shocks currently stood at 17, and asked what could be done to prevent this. When would training at Eskom recommence, since the Committee was also focused on communities and on how Eskom would be getting additional capacity of 4 000 to 6 000 megawatts to continue with repair and maintenance?
Mr Gumede said that the comments and opinions made by the auditors showed that Eskom officials ran the enterprise as if it were a “spaza shop,” because there had been no action even though there were findings that proved irregular expenditure that had resulted in a loss of R25 billion. Managers and other officials were not taking disciplinary action against the people responsible for irregular and fruitless expenditure.
Procurement processes were not regulated, so contracts were easily awarded to any companies that came forward. Legal, regulated processes were not followed, and this was shown when the people on the ground engaged in corruption as much as the ones in management positions. He recalled an instance where a shareholder had refused to give the board permission to add additional members to the board. This was later configured after the shareholder had changed his mind, which resulted in the election of Eskom’s current board. He asked if the board members were indeed chosen based on their skills and expertise, because it seemed to him as if current board members were not of the required calibre.
Mr N Dlamini (ANC) said the Eskom presentation did not translate to the availability of electricity, as South Africans were still experiencing up to 11 hours of loadshedding a day. He referred to the video where the Eskom CEO, Mr de Ruyter, had accused the ANC of planning to steal $8 billion, but had failed to confide in the Committee about the companies that supplied Eskom with low quality coal. He said these utterances, including that the terms negotiated by government with the World Bank were last seen in 1980s, were a play on a political stage. The Committee was in a serious crisis when such utterances by the CEO were in the media instead of bodies like the Standing Committee on Public Accounts (SCOPA), which was meant to fight corruption. He added that the CEO may have done this to further his own agenda, which was still unknown. He expressed his disappointment at how this matter had been shared with the public, because pieces of legislation had been drafted to protect whistleblowers. He was also confused as to why a CEO that had resigned was still working.
Mr F Essack (DA) referred to the part of the presentation which covered cash flow and debt servicing requirements, and asked how Eskom would mitigate this if they faced catastrophic breakdowns and emergencies because the grid was unstable. He asked for elaboration on the stock of diesel and how sufficient diesel stock would be paid for. With winter looming, he asked if there was a concrete plan to rebuild the coal stockpiles. What additional capacity could be expected to be added to the grid during winter? Lastly, he asked what non-core assets Eskom was planning to get rid of, and for an update on the business separation process.
He added that financial projections for the year 2024 looked bleak for the company and the country as a whole.
Ms V Malinga (ANC) said presentations such as the one given by Eskom were not helping or improving the current electricity crisis in South Africa. She agreed with Mr Gumede on the group CEO’s media presence issue, and asked him to explain how the country had gotten to stage 6. With the accusations he had made regarding the $8.5 billion, she asked if he had opened a case in his capacity as the CEO and whether he was an accomplice. She asked for clarification on how an entity that consistently had financial struggles continued to have irregular expenditure.
Mr Cachalia said the question or allegation made by Ms Malinga on whether Eskom’s CEO was an accomplice was inappropriate. The Committee meeting was not a place where unsubstantiated comments should be made. Her unfounded comment on how Eskom's presentations would not help South Africans with load-shedding had been dismissive, whereas these presentations helped them better understand the power utility.
Ms Malinga responded that she had not made any allegations -- she had simply referred to a video that had gone viral on social media. She asked why a person like Mr de Ruyter, who had witnessed corruption, was not providing the Committee with a case number. She said the CEO had made allegations in an interview, not her.
Ms Mkhwanazi suggested that the video to which Ms Malinga had referred, be prioritised and discussed in another meeting because it was a very sensitive matter.
Mr Dlamini said that the Minister of electricity was still unknown following the President’s announcement.
The Chairperson said that the shareholders would hold a meeting to discuss this matter and the people implicated in corruption.
Responses
Mr de Ruyter responded to Ms Mkhwanazi’s question on sales, and explained that the decline in that department was because there had been loadshedding. The power utility could not bill for a service they were not providing. Increasing grid defection had had a negative impact on sales, as well as other challenges in the economy. Sales in the year under review were slightly higher than previous years because of the recovery that had been made from the pandemic.
Mr Calib Cassim, CFO, said that the group was in the process of obtaining a diesel wholesale licence and significantly enhancing coal control measures in an attempt to combat the procurement of low-quality coal. By managing coal quality and ensuring that it adhered to the design specifications of power plants, pressure on dust stream handling would be alleviated. More needed to be done to lessen environmental impacts, even though the year under review had low emissions compared to prior years.
Mr de Ruyter said he would not respond to Mr Cachalia’s question on debt because the Minister of Finance would address that. Municipal debt continued to be a significant burden on the sustainability of Eskom. The entity's challenges with liquidity had always been well-publicised, but the issue of the escalating municipal debt continued to exacerbate that. Progress that had been made so far had been very limited. Partner agreements have been set up, which entailed approaching municipalities indebted to Eskom to help them with billing, revenue control, maintenance and disconnection of illegal connections. Eskom has not been making adequate progress with active partner agreements, as they have been able to implement only three of them.
In some instances, Eskom had had to resort to legal action and attach certain movable assets, potentially impacting service delivery and a negative impact on Eskom.
Mr de Ruyter responded to the question of why the country was experiencing stage six power cuts. One of the three units (unit 1) at Kusile had experienced the collapse of a flue unit that affected the two other flue units that carried emissions. This rendered all three units inoperable and resulted in a loss of about 2 160 megawatts. These units were meant to be returned to service in December, but arrangements for necessary steel had been made to repair the damage. Eskom was awaiting a delegation from the Department of Forestry, Fisheries and the Environment to allow them to exceed certain emission standards while repairing the collapsed flue units.
The Koeberg unit 1 was not functional at the time of the Committee meeting, adding a further shortfall of 928 megawatts in generational capacity. This was an unavoidable planned outage to further extend the life of Koeberg for another 20 years. Kusile unit 5 had been under construction when a gas air fire resulted in a loss of approximately 700 megawatts. Medupi unit 4 had also lost 700 megawatts. Due to high ambient air temperatures and poor performance in Lepalale, there were vacuum load losses, resulting in a loss of 600-1 000 megawatts. The New Vaal mine that supplied the Lethabo power plant was not able to supply sufficient dry coal, taking into account the elevated water levels around the Vaal river system, which caused Eskom to run out of coal and ultimately resulted in stage 6 load-shedding.
Higher stages of loadshedding have been avoided because Eskom had made use of their reserves of diesel and hydro-storage. The situation remained critical and was subject to further changes. He assured the Committee that Eskom teams were working very hard to prevent higher stages of load-shedding.
Mr de Ruyter responded to Mr Gumede’s question about Eskom’s water usage, and said that Eskom remained mindful of their water utilisation since South Africa was a water-stressed country. Efforts were ongoing to ensure that water was used efficiently. Diesel continued to be procured following the indication of support and assistance from National Treasury. This was an assurance to the banks that had lent Eskom money that they could, in fact, service their loans to buy diesel.
The unfortunate deaths resulting from direct contact with electrical wiring were because of illegal connections. These live, open wires in the illegal connections were strung across streets, leaving children at risk of being victims of electric contact death. Combating illegal connections and electricity theft would significantly reduce electric contact deaths.
Mr de Ruyter also addressed the comment on training at Eskom, and told the Committee that training facilities had been resuscitated and revitalised. There was an academy of learning that was at some stage dormant, but that had recently changed when Eskom commenced training for positions at all levels. There had been efforts to clear the training backlog from previous years.
On the matter of rebuilding coal stockpiles, he said that the events that transpired at Lethabo were not because the coal stockpiles were not in keeping with the grid requirements. Eskom had met all the requirements, and non-compliance with minimum stock requirements was not the problem. The rain in the Vaal Triangle was the reason why strategic coal stockpiles were waterlogged.
Lastly, Mr de Ruyter said that progress had been made regarding the business separation process and they were likely to conclude everything before the deadline they had set themselves. There was sufficient alignment between all the role players, including the National Electricity Crisis Committee, which would allow Eskom to deliver as soon as possible.
Mr Cassim said Eskom had started working with the South African Revenue Service (SARS) large business centre regarding its tax submissions. Arbitration processes had begun between Eskom and the Mozambican power utility regarding Mozambique’s debt. He also addressed the appointment of new auditors, and explained that the cycle needed to be rotated since their previous auditors, SnG, had been with them for six years instead of five. This led to Deloitte being awarded the contract, which had been approved by the AG.
He added that he had dealt with open cycle gas turbines (OCGTs), and some Committee Members had asked about the 2024 and 2025 financial years. He said these years were at the back of the generation performance in the EAF, and this needed to be dealt with, together with additional capacity. The biggest factor to be considered was how generation would be paid for in the 2024/25 financial years. Regulators needed to be approached for diesel production, as they had been asked for a 12% load factor. Eskom was granted only a 6% load factor, which was half of what they requested.
Eskom had already used R20 billion for the financial year 2023, and would most likely need an additional R2 billion to get to the end of March. This meant that with similar utilisation and similar prices, as load factors had indicated, there would be a gap of around R12 billion for the next two years, affecting the bottom line. If municipal revenue could not be recognised, which came through at an average amount of R7 billion, there immediately became a gap of R20 billion. These factors were instrumental in Eskom’s outlook and financial performance going forward.
Irregular expenditure had reduced significantly, and Eskom planned to reduce it even further by means of an automated system for prospective independent contractors. The discipline of management and staff in applying policies and following procedures had not been an issue. The issue had been compliance, and discipline around non-compliance. Procedures and consequence management needed to be monitored and implemented.
Mr Cassim responded to the question about the sale of non-core assets. He said that two assets were being looked at -- Eskom Finance, a subsidiary that offered home loans for staff members, and the property portfolio. Eskom was working on the disposal of non-core assets that were not related to generating electricity.
Mr Monde Bala, Group Executive: Distribution, addressed the outstanding debt from Electricidade de Moçambique (EDM) and Transnet. He said Transnet had no outstanding arrear debt, and the R230 million in dispute would be discussed in the arbitration process that had previously been postponed. Both parties were awaiting a new date.
Mr Bala also added to Mr de Ruyter’s response regarding municipal debt. Eskom had offered support to several municipalities that could not settle their debts. There had also been municipalities that were able to pay but were unwilling to do so. Interventions have been put in place to rectify this. This problem would remain unless there was fundamental restructuring within electricity businesses and municipalities. The electricity distribution industry had to be restructured in a way that ensured that municipalities were able to repay their debts.
Lastly, he said that electricity theft affected not only Eskom, but municipalities as well, which resulted in some of them struggling to repay their debts. He added that the entire distribution business had to be restructured to ensure sustainability.
Closing remarks
Minister Pravin Gordhan thanked the Eskom Board and Chairperson of the Committee for the meeting. He had noted what the Committee had asked of the Department of Public Enterprises.
The meeting was adjourned.
Documents
Present
-
Magaxa, Mr K Chairperson
ANC -
Cachalia, Mr G K
DA -
Dlamini, Mr NE
ANC -
Essack, Mr F
DA -
Gordhan, Mr PJ
ANC -
Gumede, Mr SN
ANC -
Malinga, Ms VT
ANC -
Mkhwanazi, Ms JCN
ANC -
Nemadzinga-Tshabalala, Ms J
ANC -
Phiri, Ms CM
ANC
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