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Beleaguered state electricity utility Eskom recently briefed a combined sitting of the Portfolio Committees on Energy and Public Enterprises on its financial situation, stating that it has investigated all irregular supplier contracts, and has recovered R1 billion from McKinsey, including interest. Five of the companies investigated are no longer doing business with Eskom, with R2.3 billion having been spent with them in the past three years.

Eskom still scrambling to pay its billsThe committees questioned how Eskom’s wage bill will be dealt with following the signing of a new wage agreement between Eskom and the unions. The three-year wage agreement will cost the cash-strapped utility R3.9-billion in total, but there is no clear indication of how it will pay for the increases as Eskom is already struggling to pay off its debt.

Eskom’s results for the year to end-March showed net finance costs of R23-billion, with an after-tax loss of R2.3-billion reported. The utility is borrowing to service its debt, technically known as a debt spiral. Its total debt has ballooned from R40-billion in 2007 to R388-billion at the end of March, and is expected to grow to R600-billion in four years.

The utility has requested an average tariff increase of 15% a year for the next three years, which it hopes will help pay its bills, but the increase is being opposed. “While this is a frightening prospect for consumers, Outa believes that even those tariff increases won’t cover Eskom’s debt repayment obligations,” lobby group the Organisation Undoing Tax Abuse (Outa) said in a statement.

Outa noted that Eskom based the 15% increase on a revalued asset base, up from R702 billion in the last price application to a starting point of R1 288 billion. “Outa is extremely perturbed by the grossly over-valued asset base used as the basis to calculate the 15% tariff increase. We ask NERSA to reconsider its decision to permit Eskom to do asset rebasing, by ensuring that Eskom adheres to international financial reporting standards (IFRS),” said Ronald Chauke, Outa’s portfolio manager for energy.

Outa said that economists have told the group that if best practice was applied along with stringent oversight over Eskom, the real asset valuation should not exceed R400 billion given the age and book value of most of Eskom’s coal fleet and other assets. Eskom also assumes it will sell more electricity over the next three years, despite its ongoing sales slump, Outa warned.

Image credit: https://www.outa.co.za/outa-boosts-its-energy-sector-portfolio/

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