Eskom’s 2023/24 Audit outcomes & AFS: hearing; with Deputy Minister

Meeting report

The Chairperson welcomed everyone present and acknowledged the presence of the Deputy Minister. The Committee had invited Eskom to speak about the audit outcomes for the year 2023/24, which ended on 31 March 2024. Due to an oversight visit in the second part of last year, Members had asked the Eskom team to update the Committee as much as possible, notwithstanding the interim results for 30 September 2024, and it would be remiss for the Committee not to engage on that. The Committee needed an update on governance, state capture and other significant areas. The letter sent included questions on matters that Members needed to be updated on.

Deputy Minister's overview

Ms Samantha Graham-Mare, Deputy Minister of Energy and Electricity, commenced by submitting the Minister’s apology for his absence, as he was hosting the first energy transition working group as part of the G20.

She told Members the results for 2023/24 were not ideal, as reported by the Special Investigating Unit (SIU) and the Auditor-General of South Africa (AGSA), who were aware of the accountability that must be followed. However, Members would have noticed a significant improvement in the subsequent year. During oversight visits to various power stations, there had been a noticeable change in mindset, ethos, and an immense sense of positivity on the ground. The new leadership had been remarkable, resulting in a substantial turnaround within Eskom.

However, with over 40 000 employees and billions in procurement, change would not happen overnight. They recognised the deep systemic issues, and the effects of state capture were not dissipating quickly enough. Members would also see that all six points raised in the letter had been addressed in the presentation.

She happily announced that Eskom would now be under the same Ministry to which it reports, allowing the Department to adopt a holistic approach to energy management. Previously, three different departments were handling energy and electricity issues in South Africa. Now, Eskom would report directly to the Department of Electricity and Energy, which was responsible for developing and implementing energy policy. Starting from 1 April, everything would be consolidated within this single department.

Eskom has been collaborating with the SIU for 20 years to combat corruption. Members would notice the interventions aimed at improving e-tender processes, along with the establishment of a dedicated project management office. This office would analyse data from the SIU and other ongoing investigations.

The recent loadshedding was a significant issue. However, it was important to understand that Eskom was currently implementing a large-scale maintenance programme to ensure sufficient capacity during the winter season. Unfortunately, there was little room for error when unexpected problems arose. On Saturday, a series of unfortunate events had occurred: one unit had gone offline, causing multiple other units to trip, and Koeberg had already gone offline the previous week. In addition, further issues at Medupi and Kusile had arisen, exacerbated by the lack of flexibility in the planned maintenance schedule.

It was crucial to note that there was no conspiracy behind the current loadshedding -- instead, it was a result of a domino effect beyond Eskom’s control. The teams were working tirelessly to resolve the situation and move past loadshedding. This was particularly unfortunate, considering that Eskom had generated 99% of the country’s electricity over the past ten months, which was a significant achievement compared to the days of loadshedding experienced the previous year.

One of Eskom's biggest threats was the significant municipal debt. The organisation had been meeting with municipalities across the country to develop tailored strategies to tackle this issue, as each municipality faced its own unique challenges. Currently, 71 municipalities were participating in the debt relief programme, 67 had defaulted on payments, and 13 were considered chronic defaulters.

Treasury had created a programme for these municipalities. However, they had not been provided with additional resources to address the underlying issues that had led to their inability to pay off their debts. As a result, Eskom often found itself at a disadvantage. The company was actively seeking ways and strategies to help municipalities become financially viable. Addressing municipal debt had become a major focus for the Department.

Eskom board chairperson's remarks

Mr Mteto Nyati, Chairperson of the Eskom board, began by thanking the Deputy Minister for her continued support for the new board. He emphasised that all Eskom stakeholders were part of a collective effort to ensure the entity's success. Therefore, management should not feel burdened when appearing before Parliament. Their goal was to eliminate corruption at Eskom while fulfilling its commercial and social mandates.

A key objective was to promote sustainability, which refers to profitability. Eskom had to improve its profitability and rely less on government support. Currently, the organisation is struggling with a weak balance sheet due to high debt levels. While the allocation of R254 billion was appreciated, it could have been used for other critical needs.

Today, the focus was on the audited financial results for 1 April 2023, to 31 March 2024. The new group chief executive officer (GCEO), who joined on 1 March 2024, had made significant strides in addressing corruption, working with the SIU and law enforcement. However, Eskom was also affected by external factors.

Internal controls must be strengthened to ensure growth. The previous year had been challenging, marked by 329 days of load shedding and a R25 billion loss from R34 billion spent on diesel. This served as a reminder of past mistakes.

Looking forward, electricity availability had improved to 99% this fiscal year, leading to a R17 billion saving on diesel. By March 2025, Eskom aimed to report profits after years of governmental reliance, directly linked to efforts to eradicate load shedding.

Key focus areas include operational efficiency, financial stability, and sustainability. The current leadership was addressing a dysfunctional culture, enforcing consequences for corruption, and leveraging technology and human capital to enhance internal controls. Despite setbacks in eliminating load shedding, ongoing efforts were in place to resolve the issue.

Mr Nyati highlighted that R254 billion was a significant sum, and South Africans must see how it was spent. He had requested detailed information from Eskom regarding governance, the weak balance sheet, and consequence management.

Eskom briefing

Mr Dan Marokane, Group Chief Executive Officer, took Members through the presentation, which aimed to address the six points requested by the Committee.

In the 2023/24 financial year, Eskom had seen an abysmal performance, reporting 329 days of loadshedding. It had spent R33.9 billion on open cycle gas turbines (OCGTs), and its loss before tax had amounted to R25.5 billion.

The biggest threat to Eskom was its municipal debt, which had escalated to R74.4 billion. The breakdown in internal controls led to repeated audit findings. However, in the 2024/25 financial year, Eskom recorded significant performance, achieving electricity supply availability 99% of the time, compared to just 10% in the previous year. Diesel savings have recorded a positive R17.57 billion so far, compared to R28.7 billion spent in the last year. The after-tax profit forecast for the year was estimated to be more than R10 billion.

He said Eskom was still facing several systemic issues, which required intense focus. On the operational side, there was unreliable generation plant resulting in poor performance, grid constraints to connect additional capacity, and a dysfunctional organisation culture. A generation recovery plan was being executed to address these challenges.

Financially, Eskom had a weak balance sheet due to its high debt burden. Tariffs were not reflective of prudent and efficient costs. There was revenue pressure due to non-payment by customers and declining sales volumes. To address this, National Treasury was implementing a debt-relief programme, as well as municipal debt interventions. There was also migration towards an unbundled cost-reflective tariff structure.

With regard to sustainability, Mr Marokane said Eskom was challenged by its outdated, vertically integrated business model, its need to transition to clean energy, the prevalence of crime fraud and corruption, and lack of adherence to internal controls. This was being addressed by driving the legal separation of the organisation through the National Transmission Company of South Africa (NTCSA), the unbundling of generation and distribution, and the establishment of a dedicated unit to pursue a clean energy project pipeline and a just energy transition (JET).

See attached for full presentation

Discussion

The Chairperson stressed the significance of simplifying the issue of municipal debt and how it was being addressed. He asked if Eskom's accounting standard states that if a particular municipality did not appear to have the ability to pay, they did not keep it on the books as potential revenue, but rather recognised it when it landed in the bank account. Were they expecting the number of municipalities in this situation to increase?

Mr Calib Cassim, Group Chief Financial Officer, Eskom, confirmed that this was the case.

The Chairperson said that during an oversight visit to Eskom, they had discussed the issue of municipal debt, noting that Members had raised alternative measures that needed to be addressed. One major concern had been that municipalities often used electricity revenue to cover other financial shortfalls instead of using it for its intended purpose, which resulted in unpaid bills to Eskom. To resolve this, the team suggested that electricity revenue should be strictly allocated for electricity expenses.

There was also the challenge of collecting revenue from residents, particularly because many were living in poverty. Eskom planned to collaborate with the government to enhance this revenue collection capability, which would result in skills transfer to the municipalities and require less reliance on Eskom over time.

The Chairperson also inquired about the capital investment available through municipal funding mechanisms. He questioned whether, in addition to the misallocation of funds, there were also shortcomings in the recapitalisation of electricity infrastructure within municipalities, which leads to load reduction. This in turn leads to municipalities' inability to maintain or fix their infrastructure. It seemed Eskom was suggesting that those funds should be spent directly towards that, and not anything else.

Lastly, he asked if Eskom was also pointing out that the indigent grant was insufficient in 2025 and needed to be increased to reflect changing lifestyles. He asked what would happen with the existing debt, and how the debt relief programme with the National Treasury would unfold.

Eskom's response

Mr Monde Bala, Group Executive: Eskom, responded that the Chairperson’s interpretation was correct on the ring-fencing of the funds and having to be spent on their intended functions. The net effect of this was a chronic under-investment in existing infrastructure, as well as the ability to expand it. For example, with regard to energy losses, in Maluti-a-Phofung there were no meters, and those who paid, paid what they thought they should be paying. The rest simply did not pay because there were no meters. So when Eskom went in for a pilot, they prioritised how they would tackle the meter problem, because it was quite huge. They had started with businesses, to ensure they had metering, and collected on behalf of the municipality. There was no investment available for metering. There were papers written about the amount of capital injection required in the municipalities, and it reported that an amount of R30 billion was required to get the existing infrastructure to a comfortable state. One may have the generation, but until it gets to the customer, there would still be demand/supply imbalances, which would translate to loadshedding. Thus, it was necessary for the who electricity transformation to be part of the agenda of the National Energy Crisis Committee (NECOM) NICOC.

Another big challenge was that there were no skills in the municipal space. Eskom was stretched, but it could make some of its skills available to work with the municipalities in order to capacitate them to stand on their own. It was not to take over, but a short-term intervention to get them to run their businesses.

He confirmed that the Chairperson’s interpretation of the indigent grant was also correct -- it was inadequate, and required to be modified in how it was administered.

He also explained the debt relief framework. The National Treasury debt relief programme stipulates that if municipalities adhere to the conditions outlined in the circular and maintain compliance for 12 consecutive months on their current accounts, Eskom would write off one-third of their debt. After three years of consistent payments on the current account, it was understood that the remaining debt would be forgiven.

Mr Morakane added that there were 10 million indigent households in South Africa that qualified for the free basic electricity (FBE) grant, but only two million had access to it. Eskom must drive for more access to this grant to alleviate the pressures these households experience.

Further discussion

Ms H Neale-May (ANC) said the SIU had provided a bird’s eye view to SCOPA of revelations of systematic manipulation of procurement processes, with transactions designed to evade oversight on staggering financial impropriety, which was extremely disturbing. She was pleased that Eskom would address this, because there was a culture of malfeasance by front-line employees and senior managers, including their family members, making it a sophisticated network of milking the state. If Eskom got this right, it would start realising profits and delivering services.

Eskom had continued to submit financial statements which contained misstatements in multiple account balances, and disclosures with significant internal control deficiencies that resulted in negative audit outcomes. None of the findings of the previous eight years had been addressed.

She asked if Eskom had an audit action plan to address audit findings and implement recommendations; if so, who oversaw their implementation? Secondly, what was the role and purpose of the audit and risk committee, given that it had failed to address the repeated audit findings for eight consecutive years? What was the board’s opinion on the effectiveness and competence of the audit and risk committee?

Regarding irregular expenditure incurred in 2023/24 related to existing multi-year contracts, she asked for a breakdown of these contracts amounting to R2.7 billion in irregular expenditure. Were all Eskom employees in supply chain management (SCM) vetted? The SIU report showed clearly the elephant in the room was the SCM processes. What were the challenges with implementing controls on the removal process for uncondoned irregular expenditure? These controls were important to minimise the continued impact of historical matters on the cumulative irregular expenditure balance.

Lastly, the accounting authority introduced a loss control function in 2021 to reduce the occurrence of irregular, fruitless and wasteful expenditures and to oversee consequence management, including disciplinary actions, condonation and recovery of losses. The external auditors found that management did not adequately implement the continuous review and monitoring controls related to self-assessment for SCM, irregular, fruitless and wasteful expenditure, nor did they implement the mechanisms for effective collaboration between internal audit and forensics. Had the turnaround plan taken into account these aspects, because they had recurred?

Mr Cassim said Members needed to appreciate that Eskom was a complex business. Treasury requirements to produce financials end in March were difficult, although they would try and improve and reduce the number of adjustments, but the Eskom audit was complicated because there were many technical components, especially in the treasury environment. There was room for improvement to close the gap, but to say by the end of May, they would be able to produce financials that were free of significant adjustments would not be correct. However, the team was working on that and undertaking measures to capacitate the accounting and internal audit functions. It was a quick turnaround time.

The Chairperson said Eskom closes its books at the end of March. Did it become a six-day sprint?

Mr Cassim said by the time they got to the end of April, that was when Eskom had the first set of numbers for the year-end. They then go through the process of additional preparation of financial statements and disclosures, but the extensive nature of Eskom’s disclosures must assess it as a going concern, which was an extensive exercise that must be presented to the board for its support and for the auditors to assess. Secondly, doing impairment testing and the models that go into it were significant. Eskom had challenges with inventory and warehousing. Creating a consolidated and complete set of financial statements taking into account governance committees and other processes was an extensive process. So, when Eskom finally gets to submit its annual financial statement (AFS) to the Treasury, they accompany it with a proviso stating that they are aware of significant work that must still be concluded. To complete it within two months was effectively impossible to achieve.

Ms Neale-May asked if Eskom have the capacity to perform, as these were challenges being repeated. The external auditors had found that inadequate actions were taken against those who transgressed SCM processes. Most of the findings stemmed from SCM. Did Eskom have an ethics committee, because there were former heads of Eskom as service providers? Eskom needed to assess how it manages this. How far was it with lifestyle audits? Was management on top of the systematic culture of corruption at Eskom?

Mr Morakane replied that coming out of the previous audit, the audit and risk committee had instructed management to compile an audit recovery plan that covered SCM, finance, and information technology-operational technology (IT-OT) systems, which were monitored quarterly. The committee of the new board had put this in place.

On the vetting of officials, he said the executive level had been vetted, and they had since focused on critical areas like procurement and forensic investigation functions. Ms Nompumelelo Thembela joined Eskom in September last year and set up capabilities within the business to do some level of vetting while working with the authorities externally.

He said the SIU results needed to be viewed within context, as they covered many transgressions over a long period of time. Some of the action items had not been followed to the letter, but Eskom had a structured engagement with the SIU, and they got follow-ups on what was outstanding over time. The complexities in the nature of some transgressions were such that company policy was not explicit on the level of declarations that needed to take place at various levels. Gaps in policies had been identified and fixed accordingly. Some had been presented to the board, and the declaration of interest policy had been revised to close the gaps identified during the investigations. Policies were being revised to remove ambiguity while acting on the backlog of outstanding actions on staff still in the organisation.

Loss control was a business unit that reports to legal. It was working on addressing the backlog to ensure repeated findings were avoided, and to clear outstanding cases that may require investigations. Some of these matters date back eight to ten years.

The auditors found that not enough action was taken against those who contravened the SCM rules. They were sifting through a pile of findings but not addressing them urgently. However, the teams were addressing this backlog with case presenters who work with various agencies. Some of the files received from the SIU were so comprehensive that they were able to initiate interventions and defend challenges emanating from court proceedings. The progress may seem slow, but they were confident they would clear the backlog within six months.

Mr Nyati responded to the board’s opinion regarding the audit and risk committee. He said that when they were appointed two years ago, they had discovered that the board was under-capacitated, with many vacancies. This made it impossible for the board to perform its duties effectively. However, Eskom now had a fully staffed audit and risk committee led by a highly competent chairperson. This committee ensured that financial statements were completed and published, a task that had not been accomplished in some time. They collaborated with Deloitte as their external auditors.

While oversight was important, it was also essential for management to be competent to deliver results. The board had worked to appoint strong leaders within the management team to drive these improvements. In the past four months, a significant number of new leaders had been appointed, bringing with them the necessary skills and a proven track record. Additionally, the CEO was responsible for strengthening his leadership team. As a result, Eskom now had a robust audit and risk committee, along with a leadership team that leads by example.

Mr Bheki Ntshalintshali, Independent Executive Director, Eskom, emphasised the point of the entity's capacity, stating that having a functional audit and risk committee alone was not enough, but ensuring that the functions were capacitated to deliver results was just as important as having an effective committee.

Mr Morakane added that due to the workload and intensity of focus of this committee, the board had recently decided to split the audit and risk committee to have more capacity and focus on the business.

When reflecting on the 2023/24 audit outcomes, they had identified that they needed to have strong resourcing within finance – they needed to beef up technical accounting because they had found that the back and forth between Eskom and the external auditors was not acceptable. Some of the challenges at Eskom resulted from the many years of its painful history. Some of the skills were difficult to obtain if the compensation and value propositions were not aligned. These people were difficult to retain and required competitive compensation. Eskom had lost key skills due to a combination of challenges.

Management had also spent the whole calendar year in an audit mode. Results had been released on 19 December. Naturally, the next audit started around now, and they had not had time to do the interventions on the identified gaps. He could even tell Members what the auditors would find if they came in tomorrow. However, they were engaging auditors to have time to close the gaps and move incrementally to positive audit outcomes. Management was extremely busy preparing for that audit, including fixing the internal controls and laying a foundation for the new way of doing things so that auditors did not run around looking for information that should be easily accessible. He emphasised that the audit findings had been taken seriously.

Mr Len de Villiers, Chief Technology and Information Officer (CTIO), Eskom, said his department was introducing some additional monitoring systems that would produce audit dashboard reporting that tracks all audit findings and allocates them to an individual by name, not position. That person would be required to report monthly on the progress and the committed deadline for closure of that finding.

Further, audit remediation was as important performance as reviews. These new responsibilities were aligned to their performance reviews in their key performance indicators (KPIs), and they were held stringently accountable on audit for remediation as well as the relevant consequence management associated with that finding.

The dashboards had been compiled and would be submitted to the audit and risk committees. These would also be a standing item on the audit committee’s agenda. They had also introduced audit systems that were being refined now. They had also ensured there were audit registers maintained and propagated to ensure nothing falls through the cracks.

Ms Thembela provided insights into the actions taken regarding consequence management. She explained that they employed a two-pronged approach for cases coming from the forensic department and the SIU. They assess both implicated employees and suppliers. A significant amount of work had focused on employees who were implicated, resulting in several being relieved of their duties. Approximately 58 suppliers underwent the disciplinary committee process and received definitive sanctions, banning them from Eskom's systems. Another 45 suppliers identified through SIU investigations had also been removed from the system.

Mr D Skosana (MK) felt it would be amiss to blame the current board and management for Eskom’s historical challenges, but Mr Cassim had been with Eskom for a long time now, so most of his questions would be directed to him. He commended the board and the new management’s efforts to restore Eskom.

Komati power station had closed down and almost 2000MW was lost under Andre de Ruyter, who had totally destroyed Eskom during his three-year tenure. During that period, they were replaced with hydrogen under a world scheme, and he questioned whether Eskom had made the correct strategic decision at that time. What had happened to the employees at that power plant? Would hydrogen provide adequate energy to the grid, and at what point would the power generation come under pressure? Did Eskom believe that solar and wind could replace coal as a base load? What should the people of Mpumalanga be told about Eskom’s capacity to use coal to power its stations going forward, as the European Union (EU) countries were arguing that SA must replace its power stations due to carbon emissions?

There were also too many trucks on the Mpumalanga roads causing accidents and potholes on the road infrastructure -- did Eskom have creative ways to source coal for Eskom power stations through rail or conveyor belts?

Municipalities were struggling to pay their debt, so what was the plan to eradicate this? This needed to be addressed. Although most South Africans were unemployed, some wanted to pay their debts.

When could Eskom provide a true reflection of its irregular expenditure, as the figures presented previously were not accurate? Eskom would continue to incur billions of irregular expenditure due to multi-year contracts that could be condoned or until they expired. This issue had been raised during the Committee's visit to Eskom Park. However, it was perplexing that Eskom was being forced to continue doing business with companies that continued to transgress its requirements. During the visit at Medupi, Members had found a generator with ABB branding and had asked about it. They could not allow ABB to hold Eskom to ransom.

Lastly, in the State Capture Commission report, President Ramaphosa had testified that the Cabinet had decided to terminate former Eskom CEO Matshela Koko’s contract due to irregular expenditure amounting to R3 billion, which had caused dissatisfaction among both domestic and international lenders regarding Eskom. However, as of the 2023/24 fiscal year, irregular expenditure had risen to R4.7 billion. What consequences had been implemented for the officials responsible for this?

Further, ABB had admitted to bribing Eskom officials to secure contracts. It was insufficient that these contracts were currently under judicial review -- if bribery could influence officials and put Eskom in a vulnerable position, it set a poor precedent for the organisation. Why were these service providers not being blacklisted?

Mr N Paulsen (EFF) said that ABB had 30 contracts with Eskom, totalling R200 billion. The company had been implicated in state capture and was fined R2.5 billion in 2022. There had been 15 referrals to the disciplinary committee (DC) process, with 163 National Prosecuting Authority (NPA) referrals specifically.

SAP held contracts worth R1.2 billion, including VAT, and had been ordered to repay R570 million to Eskom. In connection with these contracts, there had been 13 NPA referrals for criminal prosecution. So far, the SIU had engaged with Eskom about 530 emerging laptops.

Lastly, McKinsey had been ordered to repay R1.1 billion for its involvement in state capture. All of these companies continued to do business with Eskom. These were the major offenders, not the internal small contractors that the public had been led to believe were the culprits. The smaller contractors had been blacklisted, while the larger offenders like ABB, SAP and McKinsey, who had participated in large-scale corruption and state capture, still maintained their contracts.

He recalled that 23 years ago, he had managed a SAP environment and found it to be a terrible information technology (IT) system. He would prefer to use Oracle instead. SAP did not engage directly with clients, but relied on intermediaries for implementation. The question was, who acts as the intermediary between SAP and Eskom? If Eskom had a direct contract with SAP, it had every reason to terminate that contract due to concerns about corruption. Were multinational companies immune to corruption? ABB was the original equipment manufacturer, but those generators could be replaced, allowing Eskom to avoid dealing with corrupt service providers. They should be treated the same way that small contractors have been treated.

Regarding municipal debt, it had been mentioned that municipalities’ debt would be written off after three years if they met the conditions. As demonstrated above, municipalities that had no metering systems would never be able to get debt-free, but how would they be assisted? What was Eskom doing to restore metering and install meters in municipalities where there were none? Eskom units were expensive.

One of the things that happened at Eskom was that the electricity voucher system had no controls. Free vouchers were being issued. People could still buy 1 000 units for R500 because Eskom had a voucher system that was not secure. He encouraged Eskom to close it up.

Lastly, South Africa had emission problems, especially in Mpumalanga, and South Africa had good energy and electricity entities , so why was Eskom not looking at carbon capture to reduce the unpleasant environment of coal-fired power stations? There was technology to reduce carbon emissions -- why was Eskom not pursuing this?

Mr Bheki Nxumalo, Group Executive: Generation, replied to the Komati comments and said Eskom had acknowledged that the way Komati was closed had created a lot of socio-economic issues within the Mpumalanga region, especially among the people who were sub-contracting directly with the plant. It was a sizeable plant. When Komati was coming down, they were ramping up other stations like Kusile, and most of the Komati employees were absorbed into other stations. The bigger impact was on the people who were sub-contracting and cleaners.

As part of the JET, as recently approved by the board, there were a number of projects underway across Mpumalanga that were not limited to solar and wind, but involved other technologies available in the market. They were partnering with the government and the local government of Mpumalanga to test it, but they were just lagging due to the station shutdown and its huge impact.

One issue that would be addressed in the integrated resource plan (IRP) was the potential closure of certain stations. The focus was on using more advanced technologies within nuclear reactors, which offer significant growth potential. These technologies could help mitigate challenges associated with intermittent wind and periods without sunlight for solar energy generation.

Regarding the issue of trucks in Mpumalanga, a train that connects the Ermelo area and the mining regions to the Majuba Power Station had been successfully tested by Transnet. This development was expected to help reduce the number of trucks travelling to Majuba, which was one of the largest coal consumers, along with Kusile.

At Kusile, efforts were underway, in collaboration with the anchor mine, to construct a conveyor belt. Testing of coal from this belt had begun in early December. However, the mine's capacity was currently insufficient to fully meet Kusile's needs. Nevertheless, the introduction of the conveyor system from a nearby mine was anticipated to further decrease the number of trucks required for coal transport and their detrimental impact on the roads.

Lastly, regarding carbon capture, there was collaboration with the government under Eskom Research, with the Department leading initiatives in the Leandra area. Several projects were currently being considered there. The teams were also working with international companies to explore cleaner technologies, not only for carbon capture, but also for a variety of projects aimed at reducing emissions in the Mpumalanga region. The outages were taking longer to resolve because newer technologies were being implemented.

Mr Jerome Mthembu, Legal and Compliance Executive, responded regarding Eskom's business dealings with McKinsey and other firms. He said that Eskom was no longer working with McKinsey. In the case of ABB, Eskom entered into a settlement agreement in which ABB paid R1.4 billion. As part of this agreement, ABB was required to complete the outstanding work that was pending at the time the settlement was reached. Currently, it was not engaged in any new business with Eskom, aside from fulfilling the terms of the settlement.

Regarding Deloitte, the entity mentioned in the Zondo Report was Deloitte Consulting, which was a separate legal entity wholly owned by the Deloitte Group. Eskom did not conduct business with Deloitte Consulting. It had a group of suppliers that would undergo a supplier review process, expected to be concluded within the next six months. Deloitte Consulting was one of the suppliers that would be subject to this review.

Eskom also had certain suppliers that were essential to its operations and could not be easily eliminated due to the nature of the services they provide. SAP, for instance, played a crucial role in Eskom's systems. An assessment of SAP's services had been conducted, but it was currently not feasible to make changes. However, Eskom had reached a settlement with SAP, which had paid just over R500 million. This was a significant step in addressing issues with suppliers that had violated ethical and integrity standards.

Resolving the SAP matter would take time, but shutting down SAP abruptly could jeopardise the business. Nevertheless, Eskom has made considerable progress in recovering funds from the suppliers mentioned in the Zondo Report.

Eskom relied on its internal SAP Centre of Excellence (CoE) for all SAP implementations, deployments and support, without the involvement of external parties. The SAP CoE was recognised as the top CoE in Africa last year, demonstrating that the necessary expertise to support SAP was available in-house.

Globally, many companies were transitioning between SAP and Oracle. However, these changes often led to significant costs, disappointments and delays, without yielding additional benefits. Eskom was currently exploring ways to strengthen its SAP capabilities, and had launched a programme aimed at preventing any customisations of the system. They were actively reversing any existing customisations to ensure that future support and upgrades aligned with best practices.

Mr Bala responded on the installation of meters in rural municipalities and securing the voucher system. He explained that when Eskom reaches an agency agreement with a municipality, they conduct a quick diagnostic of the infrastructure, assess the status of the metering, and determine why they were unable to bill and collect payments. This process had already been completed in Maluti-a-Phofung, where they were now installing the meters and collecting revenue on behalf of the municipality. While the agency agreement was voluntary, in Maluti-a-Phofung and eMfuleni it stemmed from a court order. In other municipalities, the agreement was based on the relationship that Eskom develops with the municipality.

Regarding the indigent grant, Eskom believes this was an opportunity that should be utilised. Households that could not afford to pay should receive assistance, while those that could fulfil their payment obligations should do so, although a sustainable solution was still required.

The Eskom vending system was outdated. Originally implemented in 2008, it had surpassed its effective lifespan. It was currently working on replacing the system, with hopes to have a new one in place within the next 18 to 24 months. In the meantime, they were reinforcing internal controls to address existing issues.

They also introduced additional security measures to protect the system from physical and logical access. They had also caged the infrastructure within the data centres and replaced hardware security modules with the best security modules globally. They had installed additional firewalls, deployed end-point security enhancements to the system, conducted penetration testing, removed all access deemed unnecessary, and reviewed all user access. The system was now more secure, and was audited carefully daily.

Mr Morakane said that they had engaged with the Human Rights Commission (HRC) during its inquiry, and certain areas, like Khayelitsha, were considered no-go zones for their staff at specific times of the day due to safety concerns. They were experiencing an increase in locations that had become hostile, placing their staff's lives at risk. As a result, they avoid these areas unless they feel safe or are accompanied by the South African Police Service (SAPS). They hope the HRC inquiry would lead to a model that ensures employee safety, as individuals had been attacked even in the presence of police.

Mr Skosana felt that his question regarding Deloitte had not been adequately responded to.

The Chairperson interjected, commenting that he was in discussions with the Treasury, the AGSA and the State Information Technology Agency (SITA) regarding these matters. In a previous meeting, it had been agreed that litigating the same issues over an extended period did not benefit Eskom. The blacklisting of suppliers was carried out in coordination with the Treasury and relevant entities. The Finance Minister was scheduled to appear before the Committee, and had requested that this issue be addressed at that level.

Mr A Beesley (Action SA) began by complimenting the board and management for their efforts in turning around the organisation. He highlighted that South Africa was facing a severe unemployment crisis, and referred to Martin Luther King Jr's assertion that unemployment creates "psychological murder." The AGSA noted that if there had been less corruption, fraud, and incompetence at Eskom, primary energy charges would have been significantly lower. One consequence of the rising energy costs, which had increased by 144%, was that ArcelorMittal had had to shut down operations. This situation would result in the loss of 3 500 direct jobs, with around 100 000 indirect jobs also at risk. He questioned Eskom on how it planned to address these escalating prices, which stemmed from inefficiencies within the system.

Mr Morakane replied that by addressing the leakages caused by fraud and corruption, they would be able to control rising costs. The electricity pricing policy includes a mechanism for negotiated pricing agreements for vulnerable sectors, taking into account commodity prices and external factors. Eskom collaborates with several companies, including ArcelorMittal South Africa (AMSA), which had applied for consideration under this scheme. The rules of the scheme were outlined by the pricing policy unit within the Ministry, and Eskom was responsible only for administering its application as defined. The process of engagement on this was ongoing, and they had appealed to the National Energy Regulator of South Africa (NERSA), so he could not provide details on the merits of AMSA’s application. A holistic approach to how South Africa could protect these vulnerable businesses from shutting down due to high energy costs would soon be developed.

Mr Beesley inquired about Eskom's latest financial forecast regarding profit or loss, with only one month left in the financial year. He also questioned the accuracy of these forecasts due to previous misstatements in financial reports. Furthermore, he noted that municipal debt was becoming increasingly problematic, with organisations such as the AGSA and the SIU being owed money by municipalities. This debt was largely due to many residents being unable to afford electricity.

While acknowledging Eskom's interventions, he pointed out that Eskom had applied for a 36.1% tariff increase for the 2025/26 period, but NERSA had approved only a 12.7% increase, which still represented an increase that was 400% above inflation. He questioned how the Eskom board could justify a 36.1% increase when South Africans faced significant financial pressure. He asked how the lower 12.7% increase would affect Eskom's financial stability, considering it represented a substantial reduction in their anticipated revenue.

With borrowing at the end of 2024 sitting at R412 billion, he requested information on the current borrowing levels. He also inquired about how a qualified audit would impact Eskom's interest rates and ability to borrow, as well as whether it was experiencing any changes in its interest rates. He expressed concern about what would happen once the debt relief programme ends, and whether Eskom would consider taking on new debt in the future. Lastly, he asked how senior managers were receiving incentives, given the poor financial and operational performance from the previous year.

Mr Cassim said that they submit their shareholder report to the board on a quarterly basis, which includes forecasts for the company. Entering the third year of the debt relief programme would result in Eskom receiving R40 billion, followed by a R70 billion amount at a later stage. The Minister of Finance would need to decide how to address this R70 billion. Eskom did not have to worry about meeting its maturities under the debt relief programme, as its status as a going concern was not the immediate issue. However, when closing the accounts for March 2025, impairment testing would be necessary, since it required looking beyond a two-year horizon.

The significant difference between the tariff application and what was approved would determine whether Eskom could generate enough revenue to match the value of its assets on the balance sheet. This could lead to a substantial adjustment. Nonetheless, there had been a notable improvement at Eskom. The cash generated from operations must be sufficient to meet debt service commitments. Of the total R400 billion in debt, Eskom faced R80 billion in debt service commitments, which was unsustainable. Ideally, this sustainable level should be R50 billion. The primary goal was to ensure that cash from operations could cover debt service commitments to avoid relying on government funding.

The next crucial aspect was that cash flow must be generated from operations to cover the payments necessary to sustain capital expenditure (capex). This entailed maintaining the current infrastructure across generation, the National Transmission Company of South Africa, and distribution, which totals approximately R30 billion. Eskom should borrow funds for growth opportunities, rather than for operational costs or sustainable capex.

Regarding the requested 36.1% tariff increase, this was aimed at recovering production costs efficiently. Any business must cover its cost of capital, which for Eskom stands at 11%. However, it was currently receiving only 1.7%, despite a recent increase to 6%. Eskom was not yet at its target, but this tariff increase would make a significant difference. In their application, they had assumed the implementation of a carbon tax, but based on the recent decision by NERSA, its introduction may be delayed.

Eskom did not plan to borrow during the debt relief period, but they saw improvements in their financials, including balance sheet de-leveraging due to this relief, and enhanced financial ratios. With an operational turnaround and sustainable leadership, they had observed that the market was narrowing the spread between unguaranteed and guaranteed debt bonds. Investor confidence in Eskom was growing. During recent roadshows in New York and London in October, they had noted a strong interest from the markets for Eskom to borrow, attributed to the operational and financial turnaround, strategic improvements, and strong leadership.

Standard & Poor's rating agency recently improved Eskom’s outlook from stable to positive. The next significant milestone was to achieve two credit rating upgrades within the next two to three years. When approaching the markets, Eskom aimed to reach investment-grade status first, allowing them to borrow on their own strength. A major challenge in the audit would be the impairment testing, particularly due to the NERSA decision.

The audit process may take longer, but it was crucial to address key issues that arise, including recurring problems, as well as new concerns that may emerge during the audit. They had already received preliminary warnings regarding the impairment testing and the potential consequences of impairing their assets.

Mr Nyati said it was likely that Eskom would have increases in line with inflation going forward, and they were ensuring they would continue to have a sustainable business and cost efficiencies. He also emphasised that incentives had been paid to senior managers in the last financial year.

Mr Beesley asked what the expectation was for load shedding in the next 18 months, as this instils confidence on the economy. The 'perfect storm' had had a massive impact.

Mr Morakane said that in April 2023, the board and management of Eskom had assessed the challenges facing the generation sector and developed a generation recovery plan to be implemented over two years. This plan aimed to increase the energy availability factor (EAF) from 55% to 70%, starting in April 2025. To meet this goal, the maintenance strategies had to be adapted to address the backlog of maintenance that had not been performed for an extended period. Eskom had reviewed its maintenance processes and was collaborating with original equipment manufacturers (OEMs) for critical systems that affect the reliability of its plants. Although some short-term difficulties were expected during this transition, the long-term benefits were anticipated to be significant.

This programme had commenced in April 2023, and focused on improving the skills and leadership aspects of the organisation. As a result, the summers of 2023 and 2024 saw the highest levels of maintenance work conducted. Thanks to this maintenance, there were 311 days without load shedding. However, he cautioned that they were still not entirely out of the woods regarding load shedding.

The maintenance work was essential to achieve the required EAF, as well as to eliminate unreliability and outages. Eskom also needed additional capacity to protect itself from potential disruptions. The organisation aimed to improve maintenance processes and enhance reliability in managing outages.

Currently, it planned to integrate an additional 2 500 MW of capacity through the life extension project at Koeberg Unit 2, completed in December. Unit 6 at Kusile was expected to be synchronised in two weeks, and Unit 4 at Medupi, which was damaged four years ago, was also part of the plan. With these initiatives, Eskom was optimistic about eliminating load shedding.

Over the past period, the country had enjoyed 311 days of reliable power supply, benefiting both small and large businesses. However, Eskom remained vulnerable, particularly during the current maintenance cycle. Once this maintenance cycle concluded at the end of March, Eskom anticipates returning to a more sustainable operational level. This plan spans two years, and was being executed effectively, with continuous management of associated risks.

Mr E Madlala (MK) acknowledged his inclination to commend Eskom for its performance, but emphasised that the actual output was what mattered to South Africans. They had a state-owned enterprise (SOE) that had consistently received qualified audits for areas such as irregular and wasteful expenditure over five or more consecutive years. On the other hand, many people in their community were economically stratified and unable to afford electricity. Despite this, Eskom had proposed a steep 36.1% tariff increase. While the board and management may be working diligently to stabilise the energy supply, he expressed a desire to hear more about the board's future plans for providing affordable and stable electricity. Eskom could not always rely on reactionary measures -- it needed to make progress.

South Africa had a concerning tolerance for poor performance and a low appetite for consequence management. The audit results indicated that consequence management was a critical issue. How many employees had been dismissed for poor performance or for failing to meet their KPIs? What was the system of performance management regarding the achievement of KPIs and targets? Was there a way for Eskom to develop a proportional electricity pricing strategy? A person earning R40 000 per month should not be expected to pay the same amount as someone earning significantly less. The economic imbalance affected people’s ability to pay for electricity, leading many to resort to bridging connections because they needed it but could not afford it. Could Eskom address this by charging higher rates to those with higher incomes, compared to those who were less affluent? Eskom’s reactive strategy should be aligned with the socio-economic conditions on the ground.

Regarding the interim results for the period ending 30 September 2024, Mr Madlala inquired about the changes at Eskom. He wanted to know if these changes indicated an organisational realignment or merely the filling of vacant positions. In addition, what was the vetting status of the board and the members of the executive committee (EXCO)? Had they all undergone vetting?

Mr Bala replied that Eskom was currently finalising an electricity pricing policy which includes various issues related to subsidies for low-income households. The current system features specific tariffs aimed at low-income households, such as the home light tariff. This tariff had been structured to be cross-subsidised by other industrial tariffs.

The existing home light tariff employs an incline-block tariff system, which consists of two phases. Under this system, customers pay a lower rate for their initial levels of consumption, but if they exceed a certain threshold, they are charged at a higher tariff rate. Typically, lower-income households had lower consumption levels, meaning they would benefit from the lower rate. However, if their usage surpassed a specified point, they would incur higher charges. This tariff was specifically designed to support these households.

To address confusion among consumers who were paying different rates at various times of the month, Eskom’s latest submission to NERSA proposes eliminating the two-phase tariff structure. It suggests replacing it with a consistent tariff for low-income households. Eskom had also given an assurance that the tariffs for low-income households would not increase.

Mr Morakane said they had strengthened the executive team while addressing operational matters. The structure implemented in September of last year reflected their pathway moving forward. Although they faced challenges in the IT-OT area, they had enhanced their capabilities by bringing in the right personnel for support. A similar effort had been made in supply chain management. The new structure was designed to provide the necessary capabilities for future success.

Eskom also intended to invest in renewable energy to create a mix of technologies that address emissions and global changes. They were confident in their ability to maintain expertise in the nuclear sector. They had also acquired capabilities that would help Eskom make progress on the gas-to-power initiative at Richards Bay. They were currently evaluating new technologies, such as hydrogen and others. Most importantly, the structure was focused on achieving deliverables within a two-year timeframe.

Ms Thembela said they had been given a mandate by the State Security Agency (SSA) to conduct preliminary work on vetting, but SSA were responsible for issuing the certificates. This involved two separate processes that take a considerable amount of time due to the SSA's systems. For instance, they could load only about nine forms in one day, which was a significant amount. In addition, they needed to retype a 30-page document to ensure it passed through the SSA's process and was queued among many others, as there were competing interests within the SSA. Currently, they only have three outstanding forms from the group executives and the board, which were for new employees who started in January. So far, they have received 45 clearances from the SSA, with only three still pending.

Mr Nyati added that the board had already received five clearance certificates out of 12, and only seven out of 23 executives had received theirs. The GCEO and the board chairperson had both obtained their clearance certificates.

The Chairperson recalled being listed as a reference on a curriculum vitae (CV) for an individual who had applied to work for the Hawks. After a year, he had received a phone call from the SSA to discuss the applicant as part of their vetting process. At that point, the individual was already employed and had appeared on television. The concern was that they should expedite the vetting process to ensure it was completed during the hiring process. This would help avoid the potential need for reversing employment if any issues arose later. This matter needed to be raised with the relevant Minister.

Mr G Skosana (ANC) pointed out that a significant portion of the municipal debt, which amounted to R40 billion, originated from municipalities deemed dysfunctional by the Department of Cooperative Governance and Traditional Affairs (COGTA). He raised concerns about whether these municipalities would be capable of repaying their debts, noting that many of them were currently struggling to pay their employees and were over-indebted. He questioned the effectiveness of the debt relief plan and whether there had been any discussions with COGTA and the South African Local Government Association (SALGA) regarding this issue.

He commended Eskom for achieving diesel savings of R17.5 billion, but inquired how this amount fitted into the overall cost of electricity generation. He asked whether these savings would contribute to reducing Eskom's overall generation costs, and when it could reasonably expect to achieve financial and operational stability. He highlighted the challenges of dealing with aging infrastructure, rising input costs, and the need for a transition to a cleaner energy mix and enhanced energy security.

Ms T Bila (ANC) said that the SIU had previously reported to the Committee about systematic contract splitting that had resulted in the theft of over R1 billion. The report had highlighted that 5 464 employees had failed to complete their declarations of interest, and 334 employees were found to have financial ties to vendors. There was also a direct connection of money flowing from vendors to Eskom employees, with 35 employees receiving over R180 million as capital expenditure. She inquired about the mechanisms in place to recover the R1 billion, and asked what Eskom’s policy on the declaration of interests stated. She questioned why these declarations were not part of the performance management system, or the scorecard matrix. Furthermore, she sought information on the specific changes made to Eskom’s SCM processes to prevent similar issues from happening in the future.

She also addressed the theft of prepaid electricity tokens, asking how much had been lost due to this theft. She wanted to know how Eskom had remedied material breakdowns in internal controls within the prepaid IT ecosystem, and what concrete steps had been taken to address deficiencies in user access controls, data logs, backup procedures, and the staff's understanding of the prepaid environment, including both hardware and software.

She also raised questions about Eskom's role in the Southern African Development Community (SADC), asking how it planned to address the potential for increased regional energy demand in SADC economies. She requested information on investments made in cross-border infrastructure and collaborative energy projects to ensure that future supply meets the demands of both South Africa and SADC countries. Finally, she asked if there was a return on investment from Eskom’s role in the SADC region's energy landscape.

Mr F Essack (DA) expressed his satisfaction with the transparency demonstrated by the board and management of Eskom during the meeting. The issue of municipal debt had been raised several times throughout the discussions. He suggested that the dysfunctionality of various municipalities partly stemmed from the misuse of Municipal Infrastructure Grant (MIG) funds for operational expenses, rather than for infrastructure development. Municipalities were at the core of the crisis, and he inquired whether the larger municipalities, such as Johannesburg, Tshwane and Oliver Tambo, were settling their debts in light of Eskom’s interventions.

He expressed curiosity about Eskom’s collaborative efforts with the private sector. He also asked about the liquidity and debt challenges that were expected to arise over the next six months, especially given the current dire collection scenario. He requested the Deputy Minister to provide the current energy availability factor.

He recalled that during intense discussions in October 2024, the municipal debt had been projected to rise to R97 billion by the end of March, which was a significant concern for Eskom. He questioned the Eskom team about the effectiveness of the debt relief programme, and if it was yielding minimal results. Furthermore, he asked whether the Auditor-General (AG) was delivering on the audit outcomes, as these seemed to indicate otherwise. What was the current situation regarding the ongoing non-compliance with SCM processes?

National Treasury had clearly stated that Eskom would not receive any bailouts moving forward. Given the considerable challenges faced by Eskom, how might this impact the turnaround strategy? He raised another issue, questioning whether the board was aware that Eskom was paying double the price for tyres compared to the average South African. He also inquired about the monthly interest Eskom paid on its borrowings.

In the first half of the 2023/24 financial year, Eskom reported a profit of R1.6 billion. However, this was followed by a staggering loss of R55 billion in the subsequent six months. What was the projected profit or loss for the 2024/25 financial year? What could South Africans expect during the upcoming winter months? Had Eskom frozen the pensions of any employees found guilty of misconduct, and how much money had been spent on diesel in the last 30 days?

Mr Bala stated that municipal debt began manifesting itself in 2012. It had grown significantly and was projected to reach R100 billion by March 2025, which was expected to be accurate. Eskom could not resolve this debt on its own but had developed interventions that required cooperation from other parties. Currently, the debt relief programme is voluntary and only for those municipalities willing to participate. Unfortunately, there was little willingness among municipalities to engage.

Eskom was collaborating with SALGA, COGTA and private businesses through the NECOM structures to seek sustainable solutions. They had observed that the debt relief efforts had had limited success, which necessitated technical support, infrastructure improvements, and investment injections. The ongoing chronic underinvestment in municipal infrastructure needed to be addressed, as municipalities lacked the capacity to manage this level of investment.

Through NECOM, discussions were underway regarding interventions aimed at enhancing municipal infrastructure and accessing the necessary funds. There were private entities within the municipal sector that were beginning to collaborate with Eskom. Implementing these solutions would require policy shifts and, to a large extent, some legislative amendments.

Concerning the prepaid voucher system, Eskom had initiated a process to enlist a forensic investigator to verify their suspicions that the system was problematic. Once the investigation was concluded, they would provide a comprehensive report detailing the findings and resulting issues. The system would need to be replaced to ensure its safety.

Ms Portia Mngomezulu, Group Executive: Corporate Services, commented on the splitting of orders, and said that the central supplier database (CSD) disempowers the buyer (Eskom) from influencing the choice of supplier, the location, or engaging with the supplier. The process begins with a list of suppliers where a category or commodity is requested. The system rotates through options and proceeds to send a request for quotation to suppliers without any engagement from Eskom, relying solely on information uploaded by the Treasury. Responses are sent through a centralised email, and the award is issued by the system.

Order splitting occurs when the buyer can select and choose suppliers. Conversely, there were situations where an order was for a million, and personnel attempt to reduce the order to below that threshold. They either split it among suppliers or commodities, but this often leads to losses.

She would need to assess the incident regarding the purchase of tyres at inflated rates. When a tender process is initiated, the quantity surveying team evaluates the situation to determine a reasonable outcome and negotiates from that standpoint. This approach has been instrumental in ensuring that Eskom pays at market rates. They had now implemented an e-tender system that digitises the entire process. This system eliminates the ability for suppliers to track whether their documents have been received or to provide auditors with a comprehensive sample of tenderers. It also prevents suppliers from determining the closing time for tenders or whether tenders were accepted on time or late. The e-tender system removes these functionalities.

Further, when forensic reports are issued, the respective executives receive them, and consequence management is enforced accordingly. Any findings related to criminal activity would be reported to the appropriate law enforcement agency by Ms Thembela’s office.

Mr Cassim said that a crucial outstanding issue for Eskom's financial sustainability was how to resolve the municipal and metro debt. The Treasury had informed Eskom that no further bailouts would be provided after the initial amount of R250 billion. Including previous bailouts, the total amounted to approximately R500 billion. Regarding liquidity and future outlook, the current debt relief interventions should keep Eskom in a stable position for the next two years.

The monthly interest payments were not uniform, since some agreements required quarterly payments. However, the annual total was close to R40 billion, which averages out to about R3 billion per month. Regarding diesel expenditures, up until November, Eskom had spent below budget, resulting in savings of R17.6 billion. In December, spending exceeded the budget by R400 million, and in January, it was R100 million over budget. For February, they had a budget of R1.9 billion, which was expected to be fully spent, possibly with a slight overage. From December to February 2025, expenditure exceeded the budget by R500 million, but this was not expected to affect the year-end forecast of R10 billion, pending impairment testing that would follow.

Mr Morakane added that one of the issues the SIU had raised with Members had been that local procurement opportunities were less than R1 billion. Since 2023, they have introduced the lifting of authority for signing off on such transitions to the general managers, which has resulted in a decline. More internal controls were being introduced in this space, and these numbers had dropped at Kusile.

Regarding the SADC region, Eskom had been preoccupied with getting its house to achieve energy security, but it continued to sustain its relationships with countries like Mozambique. However, they had not progressed substantially on new opportunities of generation with their natural resources. The finalisation of the integrated resource plan (IRP) would address this. The IRP process was now with NEDLAC, and the Minister would soon pronounce on it for the country, and Eskom would align itself with it. The Ministry had five objectives, including ensuring remaining focused on energy security and activities within the region.

The winter plan would be announced in March. By that time, Eskom would have a clear understanding of the progress made in maintenance and the projected demand. To ensure Eskom's stability, improvements in the EAF and reductions in unit trip unreliability, along with additional capacity, were essential.

He said that around 5 000 declarations of interest that were not submitted by employees had been flagged by the SIU, leading to disciplinary action against those involved. This situation had created a backlog of about 20 cases, but that number had since been reduced. Eskom's policy had specific thresholds for when employees must declare their interests, and this had been clarified to include the declaration of related parties. Employees were given the opportunity to come forward and assess the extent of any potential conflicts in order to address gaps. Eskom was also revisiting its policies as the work of the SIU continued.

Deputy Minister Graham-Mare reported that the EAF currently stood at 62%, which was 7% higher than last year. She addressed the issue of municipal debt, emphasising that it was not solely an Eskom problem but a complex issue influenced by various factors, including the decreased revenue of municipalities. Many municipalities no longer had the revenue base they once had. However, the President had announced in the State of the Nation Address (SONA) that a review of the municipal funding strategy would take place, which was crucial for ensuring municipalities could fulfil their mandates.

During discussions with municipalities, it had been found that their tariff structures were often incorrect. They purchase electricity from Eskom at varying tariff rates, but typically charge their residents a single-exit tariff. When municipalities buy electricity at a high tariff rate for heavy industrial use but do not charge an equivalent or higher rate to consumers, they incur losses. Many municipalities mistakenly believed they were profitable in their electricity operations, but in reality, they were facing significant losses. It was estimated that municipalities should be making approximately 60% more in profits.

It had been established that Eskom ranked as the ninth preference on the list of creditors when municipalities experience financial constraints. As a result, many municipalities were operating at a monthly loss. A comprehensive and overarching strategy was required for the municipal debt programme, which should assess tariffs, map distribution networks, and address other critical areas. Municipalities often lacked resources and most did not employ electrical engineers, making it difficult for them to afford such expertise while struggling to cover basic expenses. Therefore, significant work was necessary in this area -- it was not merely about settling debt with Eskom. Engagements with various municipalities were ongoing, and aimed to develop a programme that would address the municipal debt issue effectively.

Chairperson's concluding comments

The Chairperson concluded the discussion by highlighting several key points. One critical issue that required further consideration was the relationship between audit matters and financial uncertainties by the end of the financial year. These uncertainties could lead to material misstatements in the financial statements. He also expressed concern about Eskom’s borrowing operations, emphasising the need for a solution that ensures the preparation of accurate financial statements and an effective audit process. This would provide certainty regarding Eskom's financial health to the government and creditors, while also addressing governance issues.

He also acknowledged the processes implemented to improve governance. He welcomed the appointment of a Chief Technical and Information Officer, recognising it as a significant step to address a major weakness in the governance.

He stressed the importance of Eskom taking care of its employees amid the challenging environment, and recognised the pressures those working at the entity face. He requested that Eskom submit its interim financial statements as soon as they were ready, as these documents helped to bridge the information gap between Parliament and the public.

The meeting was adjourned.