Eskom has failed to take “effective and appropriate steps” to halt bad spending amounting to billions, an auditor told MPs on Wednesday.
An audit of Eskom’s finances in 2020/2021 shows ongoing shortcomings in tackling fruitless and wasteful expenditure and irregular spending, said Siyakhula Vilakazi, director of SNG Grant Thornton.
The auditor-general (AG) tasked the firm with auditing Eskom’s books for the past financial year.
The AG has given Eskom a qualified audit for the fifth consecutive year.
Vilakazi was presenting the findings to parliament’s standing committee on public accounts (Scopa), on Wednesday. Eskom is set to appear before the committee on November 24.
Vilakazi said Eskom’s troubles are not only due to past deals but present contracts too.
“We have irregular expenditure that is … related to recent contracts. It is our finding that there are ineffective or inappropriate steps [in] so far as ensuring that irregular expenditure is not impaired,” he said.
Vilakazi said Eskom’s failures in keeping records informs a lag in securing funds from the National Treasury. A weak paper trail, he said, causes ongoing irregularities and impairs auditors’ ability to properly assess Eskom’s work.
Tackle debt
He has concerns the utility submitted “misstatements” in financials filed on May 31. According to Vilakazi, if faulty numbers on inventory at power stations had not been corrected, Eskom’s 2020/2021 audit would have included two qualifications instead of one.
Another concern raised in the Scopa briefing was Eskom’s plan to tackle its debt. Vilakazi pressed the committee to ask Eskom how it plans to settle R152bn in debt and R125bn in interest over the next five years. He warned that without new tariffs and government help, Eskom would fall short.
“What are Eskom’s plans to settle these amounts? Do they involve ensuring cost-effective tariffs are paid by customers? What about government help?” said Vilakazi.
In October, the National Energy Regulator of SA (Nersa) rejected Eskom’s latest pricing proposal and told it to submit a new one, based on a new Nersa pricing methodology, which at the time had not been finalised.
Auditors found Eskom’s flouting of supply management prescripts caused most of the R32bn in irregular expenditure during the reporting period. It racked up a further R4.4bn in fruitless and wasteful spending by the close of the 2021 financial year.
Vilakazi suggested Eskom is so lax in holding non-paying customers to task that this could be likened to a financial irregularity.
“We are talking about money that is not recovered from the customers, money that can be used to address some of the challenges that we are facing currently as far as the performance of Eskom power stations are concerned,” he said.
Procurement rules
Auditors struggled to find proof Eskom “took adequate steps” to hold errant personnel to account, including reporting them to the police in cases of suspected fraud exceeding R100,000.
Vilakazi said there is insufficient evidence Eskom procured goods, work and services in line with the Public Finance Management Act. There was also little evidence Eskom complied with policy and procurement rules in obtaining quotations and awarding contracts.
“In accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we report that we have identified reportable irregularities in terms of the Auditing Profession Act,” says an SNG Grant Thornton briefing note to Scopa.
Meanwhile, the Minerals Council SA has urged the government to streamline procurement processes for critical spares and other items needed to restore steady power supply.
Procurement rules regulate Eskom’s spares procurement and hiring of contractors, with the acquisition of parts among maintenance challenges.
The industry body said acquiring them in line with Public Finance Management Act processes is “unwieldy, time consuming and too difficult, if not impossible”.
Eskom COO Jan Oberholzer said on Tuesday they are “discussing with the Treasury how the [Public Finance Management Act] should apply to Eskom”.
Auditors had their own concerns about failures regarding the act.
Private generation
“We still find a number of those areas where there is non-compliance with [the Public Finance Management Act] … when we ask Eskom for explanations […] most of the time you find there aren’t really satisfaction explanations,” said Vilakazi.
According to the Minerals Council SA, urgent private electricity generation is self-evident because Eskom is failing to meet SA’s energy demands. It wants the government to encourage investment in private electricity projects, including renewables.
Council CEO Roger Baxter said: “This would encourage investments in these projects and get an immediate response from the private sector to invest and provide supplemental supply in the short to long term.”
The industry body suggests the government cut red tape by offering emergency tax write-offs, expediting the authorisation of private producers and quickly linking them to Eskom’s grid.
CEO André de Ruyter has promised Eskom will waive load-shedding by the weekend but the power supply remains critically insufficient.
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