Despite repeated promises by Eskom to improve corporate governance, the auditor-general has found the commitments its leaders made “have not materialised due to a lack of accountability at various levels in the organisation, inadequate oversight and monitoring processes and ineffective consequence management”.
Senior managers at Eskom will appear in parliament before the portfolio committee on energy on Friday to explain poor audit outcomes and performance report for 2023/24, and can expect a grilling.
The committee “will be pushing very hard” when interacting with Eskom’s leaders,” according to ANC MP Fasiha Hassa, after being briefed on Wednesday by officials from the auditor-general’s office and auditing firm Deloitte to whom the Eskom audit was outsourced.
Their report, qualified for a third straight year, “would even make Mother Teresa angry”, according to Wayne Thring, an MP for the ACDP.
The audited financial statements and annual report were due the end of September last year, but that was only done days before Christmas after issues regarding the unbundling of the National Transmission Company SA (NTCSA) and a forensic investigation relating to the illicit sale of prepaid vouchers led to a delay.
Andrè Dennis, who led the Deloitte audit team, said it was impossible to establish how much money Eskom lost through the prepaid scheme that was perpetrated by insiders. Several modules of the vending system weren’t activated and certain backups and documentation are unavailable as a result. The only way to know if a voucher has been used, is to go to the meter installed at the electricity user’s premises, Dennis said.
Thring asked how insiders could have created illicit prepaid vouchers despite the availability of advanced technologies and AI. “The inability of the Eskom board to curb these losses is treasonous,” he said.
Lack of controls
The auditors told MPs that little progress has been made over the past three years to improve the internal controls at Eskom and hold those who failed to comply with procurement procedures to account.
Thring suggested that the committee calls Eskom before them to assess progress quarterly in future, which was supported by the auditor-general’s office.
Dennis said the lack of consequences for Eskom staff who flout procurement prescripts, Eskom incurs irregular expenditure. This creates a culture “where the disregard for legislation, policies and procedures thrives”.
Investigations take as long as two years to complete and even if evidence of wrongdoing is found Eskom fails to hold institute a disciplinary process.
In some cases, Eskom paid subcontractors with whom it had no direct contract and its internal controls were too weak to detect irregularities quickly. The power utility was also unable to bill and collect payment from some large power users because it failed to conclude contractual agreements with them.
The auditor-general questioned Eskom’s numbers regarding the cost and inventory of its primary energy. Dennis said that referred to coal deliveries that still are not properly controlled at weigh bridges. DA member of the committee Kevin Mileham said that could indicate inflated coal costs.
Energy regulator Nersa will decide on Thursday whether to grant Eskom’s application for R454bn in revenue for the next financial year, which translates to a tariff increase of more than 36%. The application is based on the company’s cost estimates for the year and includes R93bn in coal costs.
Eskom also scored poorly in its performance report, achieving its targets in 17 of the 40 key performance areas. The group had targeted savings of R22.4bn during the year but saved just R9.9bn — R1.3bn of which the auditor-general was unable to verify.
The auditor-general’s office said Eskom is a going concern and able to meet its obligations as they fall due in the next 12 months, but there are several material risks to its viability. Thes include:
- Operating losses of R57bn reported in the reporting period and prior years;
- Current liabilities exceeded current assets at year-end by R50bn;
- Eskom’s reliance on debt, with continued government support, to manage liquidity;
- Huge capital requirements to increase and replace generation and transmission capacity;
- Tariff uncertainty;
- Arrear debt from municipalities; and
- Huge electricity losses due to criminality, which increases production costs without that being billed or paid for.
The auditor-general added that the assumptions underlying Eskom’s status as a going concern is fully dependent on the continued performance improvements of its generation fleet.
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