Eskom warns of R20bn loss this year as auditor finds fraud – with tender documents set alight

Eskom posted a fifth straight loss and warned the gap could widen, while its auditor said it might not be able to continue as a company.

Eskom’s loss narrowed to R12.3 billion for the year to March, down from R25 billion a year earlier, outgoing chief executive officer Andre De Ruyter said at an online earnings briefing on Friday. The utility’s debt, which supplies more than 90% of the country’s electricity, fell 1% to R396.3 billion by the end of March, he said.

According to De Ruyter, a loss of R20.1 billion is expected for the current financial year. The government has pledged to take on some of Eskom’s debts and said it will not allow them to fail.

“Without government support, Eskom will not be able to meet all of its debt service obligations,” said Calib Cassim, Eskom’s Chief Financial Officer, when presenting the results. The utility repaid 38.9 billion rand in loans during the fiscal year while raising 33 billion rand, he said.

The yield on Eskom’s 2028 Eurobonds, which carry no government guarantee, rose four basis points to 11.43% on Friday afternoon in Johannesburg. The benchmark 10-year South African government bond yield was little changed at 11.78%.

Eskom this year introduced load shedding for a record-breaking 197 days to protect the national power grid as it struggles to stem frequent outages at its old and poorly maintained coal-fired power plants. The utility doesn’t generate enough revenue to cover its operating expenses and interest bills, so it depends on government bailouts to survive.

Deloitte & Touche, Eskom’s auditor, expressed concern that the company might not be able to continue operations and said it found irregular spending, useless and wasteful costs and losses due to criminal behavior.

The audit report found evidence of a failure by the utility to take action to correct violations of the National Environment Management Act or to comply with the Public Finance Management Act, Eskom said in an IPO filing. Other irregularities were also uncovered, including the deliberate destruction of tender documents in a fire, the possible recovery or falsification of documents, and a failure to investigate and report financial misconduct and irregularities.

According to Deloitte, “there is a material uncertainty surrounding Eskom’s ability to continue as a going concern.”

Eskom also faces a leadership vacuum. De Ruyter, who served as CEO for nearly three years, plans to leave at the end of March, Chief Operating Officer Jan Oberholzer is expected to retire in April, and several other top management positions are vacant.

The energy crisis has stunted growth and discouraged investment in Africa’s most industrialized economy. Electricity prospects next year will be very limited, and blackouts will continue until another 4,000 megawatts to 6,000 megawatts of generation capacity is connected to the grid, De Ruyter said.

In October, the government announced it would assume one-third to two-thirds of Eskom’s debt to make the company financially viable. Details will be announced in the February budget.

The release of the utility’s latest financial results has been delayed by several months due to a delay in the appointment of a new external auditor.

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