We were oblivious to Eskom's underlying problems, says outgoing CEO Hadebe
Politics / 30 July 2019, 9:48pm / Siphelele Dludla
JOHANNESBURG - Outgoing Eskom boss Phakamani Hadebe on Tuesday laid bare the problems at the South African power utility as it reported a catastrophic net loss after tax of R20.7 billion for the year ended 31 March, up from a R2.3 billion loss the previous year.
Speaking frankly at the presentation of the results, Hadebe said the interim Eskom board did not have an appreciation of the deep problems at the power utility when it took over in January 2018.
Hadebe said that the interim board had an understanding that Eskom had surplus electricity and was there to deal with weak financial position, declining revenue and governance failures which were threatening the sustainability of the organisation, as per mandate from government.
"We were unfortunately oblivious to underlying factors. And these were the declining maintenance spent that was faced over years by power stations, the plants that had utilisation factor of 87% amidst a 37 years average age. This was supposed to crack," Hadebe said.
"So while we achieved some progress with regard to the performance on this mandate of financial oversight and governance, it is operational performance that has proven to be a challenge. Within four months having joined Eskom, the board and management soon learnt that the operational issues were not what we thought they were."
Hadebe said the board had done an analysis to understand how an entity that between 2008 and 2018 had the privilege of receiving 325 percent tariff increases amidst average annual inflation of six percent and had an advantage of recapitalisation of R83 billion.
He said that such an entity should have been in a different position. Eskom's debt now exceeded R440 billion while municipalities owed the power utility more than R18 billion.
"We came to a conclusion that during the past 18 years from 2000, the rate of increasing costs had always been ahead of revenue, costs at 14.5% and revenue at 12%, which left a hole," Hadebe said.
"And between the years 2010 to 2018, there have been about four instances where Eskom had been able to generate enough income to service the debt. However, that happened due to higher tariff increases and when government recapitalised.
"So the crux of the matter became clear to us that if government were to give us R100 billion and we hold all other things constant, within a period of four to five years we would be back to where we would have been before. The board then decided that we needed to prioritise the issue of cost containment because this is one tool we could manage and we were given a target of R10.6 billion for the year under review."
On restoring governance, Hadebe said Eskom was cooperating with regulatory bodies and law enforcement agencies conducting major investigations into matters of fraud and corruption affecting the organisation.
Jabu Mabuza, Eskom chairperson and interim chief executive, said despite the power utility's clean up process, there were still instances of new cases of financial mismanagement, malfeasance, and maladministration being reported.
Irregular expenditure for the current year totalled R6.6 billion, of which R1.5 billion relates to new transgressions.
"It is to be expected that new instances of irregularities will be detected as we continue our governance clean-up exercise. We have also made progress in clearing the reportable irregularities previously reported by the external auditors," Mabuza said.
"However, some irregularities will remain open until finalization of court cases or conclusion of investigations by external parties."
Eskom's earnings before interest, taxes, depreciation, and amortization (EBITDA) declined to R31.5 billion for the year, down from R45.4 billion in March last year.
This was mainly due to increased primary energy and employee benefit expenditure, combined with largely-stagnant revenue growth during the year.
Primary energy costs, including coal, liquid fuels and Independent Power Producers, increased to R99.5 billion, up from R85.2 billion last year.
As a result of the extensive challenges confronting the organisation, Eskom has embarked on a comprehensive strategic review to develop a turnaround plan that would put the organisation on a path towards achieving structural, financial and operational sustainability.
The turnaround plan supported by the nine-point generation recovery plan; is enabled by cost containment and sales growth, cost-reflective tariffs, balance sheet optimisation, and business separation.