The R54bn additional income that Eskom is expecting from a settlement with energy regulator Nersa has been considered in the auditor-general’s assessment of the entity’s ability to continue as a going concern in the next 18 months.
This was disclosed by Andrè Dennis, a partner at auditing firm Deloitte, during a joint presentation with the auditor-general to the parliamentary portfolio committee on energy and electricity about Eskom’s audit outcomes for 2024/25.
Eskom received a qualified audit report with several reportable irregularities. The auditors agreed with the Eskom board’s assessment of Eskom as a going concern but pointed to several dependencies and uncertainties that must be addressed in the future, as they could affect the utility’s going concern status.
These include Eskom’s reliance on debt and government bailouts; arrear municipal debtors; reliance on the assumption of ongoing positive and incremental impact of the generation recovery programme; and electricity losses, including ghost vending and selling of illicit tokens.
The R54bn settlement came after Eskom took Nersa’s tariff determination for the 2025-2028 financial years on judicial review, arguing that the regulator made several mistakes in applying the pricing methodology.
Nersa admitted the mistakes and settled with Eskom. It announced that R35bn of the R54bn would be recovered from consumers in the next two financial years and the balance thereafter.
It is this expected revenue that the auditors have included in their going concern assessment. It was also considered in the assessment of Eskom’s outlook for the next five years in terms of the phasing of the recovery and impairments, Dennis said.
Electricity pricing expert Deon Conradie points out that the settlement will only have legal force once it has been made an order of court.
This was expected to happen on October 7 but was delayed after civil rights group AfriForum applied to intervene. The matter has been removed from the unopposed roll and re-enrolled on the court roll for opposed matters and is expected to be heard in December.
AfriForum will then have to persuade the court that it has substantial interest to be allowed to join the proceedings. It argues in court papers that it acts in the public interest and that members of the public who will be burdened with increased tariffs should be allowed to have their say.
Complication
This, Conradie says, complicates the matter, and there is an outside chance that the R54bn may not materialise exactly as Eskom and the auditors envisage.
Dennis said municipal arrears have increased considerably in the reporting period. Nevertheless, the auditors are comfortable that Eskom will remain a going concern over the next 18 months even if these debtors continue to grow along the same trajectory.
He pointed out that receipts from certain municipalities are, according to the deemed probability of payment being made, not recorded as revenue when billed but only recognised upon receipt of the cash.
DA MP Kevin Mileham said this was Eskom’s ninth consecutive qualified audit report, which showed a fundamental inability to manage the entity in compliance with the relevant laws and regulations. He stated that the R16bn profit after tax that Eskom reported is misleading, since it includes a one-off tax refund of R12bn.
Dennis confirmed the inclusion of the tax refund but pointed to the improved performance of Eskom’s generation fleet that has led to a reduction in the cost related to its open-cycle gas turbines. Eskom must get credit for that, he said.
He explained that the electricity losses due to ghost vending and the selling of illicit tokens are not recorded in Eskom’s revenue, since prepaid sales are only recorded when the cash is received. Eskom, however, incurs the cost of supplying the electricity but does not get the income from the sales.
These losses are recorded in the losses due to criminal activity, which increased by R500m since the previous financial year, to R7.2bn.
Dennis said it is impossible to quantify the extent of the losses related to illicit tokens, because it can only be determined through a manual inspection of the relevant meter if a token has been used. Eskom is trying to mitigate this by rolling out smart meters, but until the rollout has been completed, it is impossible to know how much money Eskom loses in this manner.
Overall, the auditors pointed out the incomplete and inaccurate disclosure of irregular conduct and losses due to criminal conduct. They stated that the financial statements Eskom submitted contained material misstatements which were corrected during the audit to avoid further qualifications.
The internal controls at Eskom are inadequate, and previous negative findings in this regard have not been adequately addressed. “The revised audit recovery plan was only implemented towards the end of the 2025 financial year — too late to have a meaningful impact on current audit outcomes,” they stated.
Officials who contravene supply chain rules are not held to account, and slow progress was made in investigating and consequence management in some cases. “Failure to implement consequence management encourages a culture where disregard for legislation, policies and procedures thrives,” the auditors stated.
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