Tag: Eskom

Ex-Eskom bosses grilled over R1bn IT tender

The “overpriced” R1 billion information technology tender that Eskom awarded to outsourcing giant T-Systems two years ago is still haunting the under-fire power utility.

The Portfolio Committee on Public Enterprises yesterday continued its inquiry on Eskom into the mismanagement of state funds in state-owned enterprises.

According to Business Report, the Eskom board came under fire over “how it axed former executives and pushed through a tender deal of R1 billion for information technology and maintenance at power stations”.
Two witnesses appeared before the committee – former Eskom CEO Tshediso Matona and Eskom’s former group executive for enterprise development, Erica Johnson.

Briefing the committee, Matona said that by the time he arrived at Eskom in October 2014, there was significant turmoil within the board and there was fighting over a range of governance issues. The most pertinent matter was around procurement.

He was suspended by the board five months after his appointment.

German-based multinational T-Systems first secured the deal in December 2010, when it purchased state-owned ICT service provider arivia.kom, which came with the five-year, R500 million per annum Eskom deal – at the time described as one of the biggest outsourcing transactions in SA’s history.

However, it is understood excessive pricing was the main driver for Eskom wanting to shop around for a new service
provider.

In May 2012, Eskom, nonetheless, said it would retain the services of outsourcing giant T-Systems SA for another two years, after it announced the previous month that it was scrapping its tender for the provision of outsourcing IT infrastructure services. The tender was reportedly “overpriced”.

Responding to questions over the tender, Matona said: “There was infighting about whether T-Systems should get the tender or somebody else.”

He indicated the issues at Eskom rendered the board dysfunctional in many ways. That could be one of the reasons shareholders decided to change the board in December 2014.

When questioned around his suspension, Matona said the suspension came as a complete shock, “by a board that had just taken office and a board that was still familiarising itself with issues of the company”.

He said: “I expressed my disagreement of a new investigation, an investigation of my removal without any basis of why I had to be removed. At the time I did not know that the same was being proposed for other executives; I was handed a letter of suspension. I believe the action was wrong and I went to the Labour Court and sought urgent relief to indicate that my suspension was unfair and that I should be reinstated.”

Responding to questions around governance at Eskom, Matona said the challenge of governance and what confronted Eskom was financial performance of the company.

“The books were not balancing and there were a number of factors, revenue was under pressure and this was as a result of the economic slowdown at the time. The economic slowdown was becoming apparent at that time. The issue of tariff – as to whether it was sufficient to sustain the balance sheet, the issue of debt with municipalities which was escalating. The long and short of it is that Eskom was in serious financial trouble,” he said.

By Admire Moyo for ITWeb

Finance Minister Malusi Gigaba said on Tuesday that power utility Eskom’s application for a 19.9% electricity tariff hike next year is “unjustified”.

Gigaba was addressing a business breakfast in Umhlanga, north of Durban, organised by the Durban Chamber of Commerce and Industry.

“To ask South Africans to pay more … when the economy is subdued and the mid-term outlook is as subdued as it is and we have the types of financial and leadership challenges that Eskom is now experiencing, I think that will serve as a perverse incentive,” he said. “We’ve got to be careful what we do.”

Eskom has asked National Energy Regulator (Nersa) to allow it to implement a 19.9% tariff hike for the 2018/19 year. Nersa is currently conducting public hearings into the feasibility of the increase.

Gigaba also called on the power utility to stabilise its finances, saying that public officials needed to be “circumspect” about how they manage public resources.

“All public officials needed to be conscious of the need to fight corruption, irregularities and inefficiencies to ensure that state-owned companies perform well,” said Gigaba.

“That’s why I think that the Eskom application for a higher tariff is unjustified, given the fact that on the other hand we have excess electricity.”

The finance minister told the business breakfast that Eskom must “incentivise” South Africans by improving its governance and employing what he termed “properly qualified executive leaders from CFOs (chief financial officers) to CEOs (chief executive officers) and all other executive directors”.

Mini budget

Gigaba criticised those who said his mid-term budget painted a bleak picture of SA’s economy and failed to boost confidence.

He delivered his maiden mini budget to Parliament in Cape Town last Wednesday.

The minister told the business breakfast that he had to present facts about the state of SA’s economy as they stand. “We gave an honest view of the challenges facing our country. We couldn’t go and spin ourselves to the country knowing all is not well. We couldn’t just go to Parliament and stand before the nation and lie.

“All the things that we said in terms of the country’s economic outlook for the medium-term budget were facts, as they stood before us, when we presented the statement,” he said.

“No minister of finance, worth their soul, would have presented anything different; they would have stated the facts as they are.”

Pay your taxes

Gigaba said everyone needs to pay their taxes, given that SA faces a R50.8-billion tax revenue shortfall.

And with National Treasury expecting GDP growth of only 0.7% this year, Gigaba said that “little social and economic transformation” could be expected without stronger economic growth.

He urged the private sector to join hands with government to boost the economy.

“Economic growth and transformation must become neutrally reinforcing principles. Government is doing its share and will continue doing so,” he said, mirroring what he said in his budget address.

“The private sector must bring something to the table, it must be a give and give situation,” he said.

Speaking of the state’s mounting debt, the finance minister said government doesn’t want to leave future SA generations facing a debt hole they won’t be able to manage.

“We need to give them a growing economy with less debt so that they could begin developing wealth for themselves and grow [the] economy of those who will come after them,” he said.

By Mxolisi Mngadi for Fin24

Eskom’s latest scandal: R100m for office chairs

State power utility Eskom wants Treasury to approve a R24-million contract to purchase 9 217 office chairs, the Sunday Times reported.

The request for thousands of “operator and visitor chairs” follows an even bigger contract for office and soft chairs was signed in 2013 for R72.7 million.

According to the paper, Treasury conducted an inspection of Eskom’s offices, and found that only 500 chairs were required, and not the requested 9,200.

Eskom said its request for the R24 million expansion to the current office furniture contract was due to an “urgent need for replacement chairs while initiating a tender process”, however, a Treasury source told the Sunday Times: “The application just looked wrong and we suspected collusion between Eskom and the service provider.”

Debt and corruption scandals at Eskom make the utility the biggest risk to South Africa’s economy and the government needs to replace its management, Goldman Sachs Group said recently.

Eskom plans to raise almost R340 billion ($26 billion) in the next five years, while meeting R413 billion of interest and debt repayments, which amount to 8% of South Africa’s gross domestic product.

The utility is caught up in allegations of corruption related to contracts it signed with companies linked to the Gupta family, who are friends of president Jacob Zuma. It’s also without a permanent chief executive officer and has suspended its finance director. Zuma and the Guptas deny any wrongdoing.

Source: BusinessTech

Debt and corruption scandals at Eskom Holdings SOC Ltd. make the utility the biggest risk to South Africa’s economy and the government needs to replace its management, Goldman Sachs Group said.

Eskom plans to raise almost R340 billion ($26 billion) in the next five years, while meeting R413 billionof interest and debt repayments, which amount to 8% of South Africa’s gross domestic product.

The utility is caught up in allegations of corruption related to contracts it signed with companies linked to the Gupta family, who are friends of President Jacob Zuma. It’s also without a permanent chief executive officer and has suspended its finance director. Zuma and the Guptas deny any wrongdoing.

“We are having discussions on solutions,” Colin Coleman, a partner of Goldman Sachs and head of sub-Saharan Africa, said in an interview in Johannesburg on Thursday, without elaborating.

“Government has got to put the governance in place and clean it out. It needs a permanent credible, independent non-conflicted chairman and a credible board and from that, credible managers.”

The New York-based lender in 2015 provided informal advice to the South African government on the sale of state assets to raise money for Eskom and proposals on how to improve the utility’s cash flow, people familiar with the matter said at the time.

Eskom faces lower demand, with South Africans last year using the least amount of electricity generated by Eskom in more than a decade.

The utility is also spending billions of dollars on new power plants that are years behind schedule and over budget. The company disclosed R3 billion of irregular expenditure in its financial results on July 20, a figure which its auditors said they couldn’t independently confirm.

“Eskom is the biggest single risk to the South African economy,” Coleman said.

“If you strip out corruption and sort out procurement, I’m sure there are efficiency gains there. There are self-help initiatives that can deliver a company that’s a lot more efficient. You’ve got to incentivize efficiency.”

The South African government, which saw its budget deficit widen to 92.2 billion rand in July, is hamstrung by an economy that’s barely growing, political infighting, and losses at other state-owned companies such as South African Airways.

Two ratings agencies cut South Africa’s foreign debt to junk in April, citing the firing of former Finance Minister Pravin Gordhan at the end of March and poor governance at state-owned enterprises.

Eskom, which has used R218.2 billion in government guarantees, hasn’t held a public auction for its debt in South Africa since 2014, relying on development finance institutions and export credit agencies for loans.

The power utility is confident it can reduce its dependence on the government by targeting funding sources that do not require explicit guarantees, the power utility said in an emailed response to questions.

“Eskom continues to access various debt markets, which include funding from development finance institutions, domestic and international bond issuances, funding supported by export credit agencies as well as short-term commercial paper bill issuances,” the company said.

Source: Bloomberg

Eskom extinguishes independent power producers

Energy minister Mmamoloko Kubayi shocked the private power industry by announcing that all previously-negotiated power tariffs must be lowered to 77c per kWh, and has left companies reeling, reported the City Press.

The minister acceded to Eskom’s decision to only accept contracts where the cost of energy was below 77c per kWh, affecting 27 energy projects representing over R60-billion.

Mark Pickering, managing director of solar industry lobby group Sapvia, told the City Press there is no legal basis for the decision and attempts to reach out to the minister have failed due to her schedule.

“The minister drops this massive bombshell, then promptly leaves for China. After that, we are told, she is on leave for two weeks,” Pickering told the City Press.

Pickering said Eskom is clearly attempting to squash the renewable energy Independent Power Producer programme and the minister has bought Eskom’s story “hook, line, and sinker”.

The announcement of the tariff requirement follows recent news that many municipalities owe Eskom up to R12-billion, which has resulted in the provider threatening power cuts – due to unmet payment agreements.

Eskom has also been plagued by multiple scandals, including its executives being accused of corruption and mismanagement.

Source: My Broadband

‘Broke’ Eskom wants to hand out bonuses

Eskom has been given the green light to pursue up to R60bn in clawback tariffs.

On Tuesday, the Constitutional Court dismissed an application to set aside the power utility’s regulatory clearing account (RCA) adjustments, clearing the way for Eskom to recover a potential R60bn through tariffs in the next year.

RCA adjustments deal with funds that Eskom needs to recover due to a shortfall in electricity losses or a escalation in operating costs, through possible tariff hikes.

The National Energy Regulator of South Africa (Nersa) will now hold hearings as Eskom argues why it should be granted the delayed tariff hikes.

However, Eskom has also Eskom is considering paying its employees a R150-million “winter challenge” bonus for avoiding power cuts, The Sunday Times reports.

The submission comes a month after the power utility reportedly paid R4.2-billion in performance bonuses to staff, and two months after public enterprises minister Lynne Brown approved bonuses totaling R13-million for its executives, including former CEO Brian Molefe, former chief financial officer Anoj Singh and suspended acting CEO Matshela Koko.

“I cannot think of any reason to pay bonuses to Eskom employees for doing their job: keeping the lights on,” said Brown.

“And particularly not in the current economic environment. It is an operational matter and therefore not the shareholders’ call, but I would like to believe Eskom’s interim leadership will take prudent financial decisions.”

Added to the no load-shedding requirement is that there can be no fatalities and no environmental contraventions.

An Eskom HR executive has indicated that the bonuses would be spread across the company and not limited to generation staff. Should the proposal be approved, Eskom would then pay an amount of R149.8 million to be shared among 47,053 employees.

Last year the Pretoria high court ruled that Eskom’s RCA adjustments were “irrational, unfair and unlawful”. This came after a four year court battle which set aside aside Nersa’s R11.2bn RCA award for Eskom’s 2013/14 financial year.

The battle started back in 2013, when companies from the Eastern Cape, led by alloy manufacturers Borbet SA, lodged an application against the RCA.

The court case prevented Eskom from processing future RCA submissions, which meant that RCAs for the 2014/15, 2015/16 and 2016/17 financial years were put on ice until the court case ended. While the companies initially triumphed in the Pretoria high court, the Supreme Court of Appeal (SCA) reversed the ruling and ultimately the Constitutional Court dismissed the application by Borbet SA and others for leave to appeal the SCA decision.

The ruling on Tuesday means that the 2013/2014 RCA tariff adjustment remains applicable and that Nersa will now have to process the three period applications of Eskom’s RCA adjustments. The SCA judgment will stand as the final word on the matter.

Eskom has applied to Nersa for a R19bn clawback for 2014/15, and a R22bn for the 2015/2016. The 2016/2017 application is not yet public, but is reported to be R20bn. This all adds up to R61bn that Eskom will try to recover, possibly over one year, energy analyst Chris Yelland said.

He said Eskom sales only amounted to R180bn and the R60bn will try to cover the shortfall.

“In order to recover this money, it would need to increase tariffs by 33%,” Yelland explained. “That is what Eskom will ask for at Nersa, this is not to say that they will get it.”

In addition, Eskom’s leaked, latest Nersa application asks for a 20% hike, which is apart from the possible 33% they are likely to ask for in the RCA adjustment, which could potentially bring the overall tariff hike up to 53%, Yelland explained.

“Even if they get half of that, it will put immense pressure on consumers,” he said. “The ruling certainly has heralded interesting times.”

Eskom’s plummeting electricity sales and increasing tariffs mean that the power utility will be selling even less power in future, Yelland said. “Eskom is in a utility death spiral.”

Eskom said the court’s ruling affirmed Nersa’s decision to allow Eskom’s application for a tariff adjustment .

This means that Eskom is not barred from making future RCA applications for electricity price adjustments to Nersa, the state utility said.

“The ruling also clears the path for Nersa to process Eskom’s RCA submissions for the 2014/15, 2015/16 and 2016/17 financial years.”

After losing the first round, Nersa and and Eskom approached the SCA to set aside the High Court ruling, and won the case. In July the companies then took their case to the Constitutional Court, which on Tuesday dismissed the case.

The Constitutional Court dismissed Borbet’s application on the basis that the application “bears no prospects of success”.

By Yolandi Groenewald for Fin24; BusinessTech

Daylight robbery: Eskom drives up prices

The average four-person South African household should pay R290 a month for electricity, yet Eskom is charging them roughly R1,200, says a lobby group.

Now Eskom is seeking a 20% tariff increase from the National Energy Regulator of South Africa (Nersa).

Energy analysts have described Nersa, which starts its public hearings into the proposed tariff increase in Pretoria today, as the only thing preventing disaster.

Presentations by the Organisation Undoing Tax Abuse to parliament’s public enterprises portfolio committee this week reveal the power utility should be relying on its capital expenditure budget and the government and not on ordinary South Africans to float it.

Finance Minister Malusi Gigaba this month said the government was considering granting Eskom a favourable loan or possible bailout.

StatsSA yesterday released its findings of Capital Expenditure by the Public Sector 2016 report, which showed that capital expenditure by public sector institutions rose to R284-billion from R265-billion.

The report shows that capital expenditure by state institutions has increased by R1.2-trillion over the past five years. Eskom accounted for R73-billion, with the new Medupi, Kusile and Ingula power stations accounting for R70-billion.

Outa’s energy specialist Ted Blom said they revealed to parliament Eskom had a qualified audit of R3-billion in irregular expenditure without supporting documents.

“Explanations are needed as to how the R3-billion was processed without the documentation. Either there is a magic password which allowed this or there is an old chequebook lying around. Either way Eskom’s chief financial officer, Anoj Singh, must explain.”

Blom described the electricity tariffs the average four-person household was paying as “daylight robbery. There are three cost drivers to the power utility. They include the financing costs of money borrowed, their power plants and the operations.”

Only Eskom’s operations were subject to inflation, so increases should be a third of inflation, as two-thirds of costs were fixed.

He said on the assumption Eskom was efficient in 2005, and the cost of electricity for a four-person home was R160, the cost now for electricity, based on an annual escalation of a third of CPI, would be R290.

Blom said compounding Eskom’s financial problems was the building of Medupi and Kusile power stations.

Blom said Eskom recently announced that they need to borrow R325-billion over the next five years to finish off the two stations, 10 times higher than initial estimates.

He said Nersa should, and could, dramatically reduce the electricity tariff.

Nersa spokesman Charles Hlebela would only say that Eskom’s application would be considered in terms of the law.

Eskom spokesman Khulu Phasiwe said they would respond to allegations in parliament and not through the media.

By Graeme Hosken for TimesLive

Outa has been briefing Parliament’s Public Enterprises Committee along with the SACC and a group of academics, all of whom have compiled reports on state capture.

The Organisation Undoing Tax Abuse (Outa) has told Parliament that it has evidence that the load-shedding of 2008 and 2014 was “self-inflicted” by Eskom.

The lobby group has also appealed to whistleblowers working at state-owned companies to be brave and to continue coming forward with evidence of corruption and state capture.

Outa has been briefing Parliament’s Public Enterprises Committee along with the South African Council Of Churches and a group of academics, all of whom have compiled reports on state capture.

The committee is preparing for its inquiry into Eskom, which is expected to get underway next week.

Members of Parliament (MPs) have heard about the creation of a mafia-like system allowing for the seizure and control of state-owned companies to syphon off billions into a few influential pockets, with the SA Council Of Churches alleging that President Jacob Zuma is the pivot for this.

Outa’s Ted Blom, a former Eskom employee, has told the committee he has evidence Eskom may have engineered the two bouts of load shedding that hit the economy hard.

“I have evidence, and I say so very candidly, that the load shedding of 2008 and the load shedding around 2014 was self-inflicted by Eskom and it is also part of the corrupt practices.”

Blom is claiming that key producers “held Eskom hostage” triggering the 2008 crisis while maintenance was not performed between 2010 and 2014, which caused another round of load shedding.

By Gaye Davis for EWN

Eskom: we’re not broke

Eskom has lashed out at media reports that it was “broke”, saying it was confident it could keep going.

“Eskom refutes the notion that it is facing a cash crisis, and that it has only enough cash to last for the next three months,” it said in a statement.

“The company is confident that it will maintain sufficient liquidity to support its operations,” it added.

The state-owned enterprise said that it had noted weekend media reports about apparent financial problems.

However, it said that, because it was making an official announcement on its finances this coming Wednesday, “Eskom is not in a position to respond comprehensively to the specific issues raised at this stage”.

The power utility said that “external auditors have confirmed Eskom as a going concern, and as a result the company sees these reports as being inaccurate and misleading…

“It is important to reiterate that Eskom is not facing any liquidity challenges.”

The parastatal also said it wanted to highlight certain points, including that “whilst Eskom’s financial position has always been supported by significant reliance on debt and borrowings, its improved overall financial and operational performance over the last two years has led to an improved balance sheet”.

Eskom said it had “sufficient government guarantees” in order to be able to carry out its funding plan. It also had “maintained access to capital markets and raised committed funding”.

‘Eskom may not be able to pay salaries’

The Sunday Times newspaper published an article on Sunday in which it claimed that, according to financial statements it had seen, Eskom only had enough money to last approximately three months.

According to the weekly publication, Eskom has R20bn left, but has proposed to pay millions in bonuses, including to former CEO Brian Molefe and suspended acting chief executive Matshela Koko.

This week, Fin24 reported that, late last Monday, Eskom postponed its financial results presentations which had been due to take place last Tuesday.

Earlier this month, external auditors SizweNtsalubaGobodo reported the state utility to the Independent Regulatory Board of Auditors for apparent irregularities.

Koko has been on special leave since May, pending an investigation into an apparent conflict of interests, while a legal battle continues into the reinstatement and subsequent removal of Molefe.

On Sunday, the DA called on Public Enterprises Minister Lynne Brown to reject the proposed multi-million rand bonuses for the executives, past and present.

“The fact is that Eskom may not be able to pay salaries to its 49 000 employees come November,” said DA MP Natasha Mazzone in a statement.

Recent controversy

Here is a list of some recent controversies Eskom has been embroiled in.

  • Boiler tender worth R4-billion set aside

At the end of June‚ the Johannesburg High Court set aside a R4-billion tender given to Chinese firm Dongfang to replace a boiler at Mpumalanga power station Duvha.
Losing bidders‚ Murray and Roberts and General Electric‚ which had put in much cheaper bids than the Chinese firm‚ approached the Johannesburg High Court to have the tender set aside. Price was supposed to be a factor in the choice‚ Eskom had said.

  • Eskom paid Trillian R266-million without invoices

The Trillian report‚ released recently by advocate Geoff Budlender‚ SC‚ found millions were paid by Eskom to Trillian without proof any work was done for the power utility.
One invoice was for the broken boiler station that Dongfang had won a bid to fix. The boiler remains broken.
Budlender linked the Trillian company to the Guptas because their associate Salim Essa owns 60% of Trillian.

  • US firm acts

US auditing firm McKinsey has taken steps against its SA director‚ Vikas Sagar‚ after he wrote letters saying McKinsey was doing work for the company‚ something the company denies took place. The action taken against Sagar is part of a probe that is looking into Eskom contracts given to a Gupta-linked company.

  • Tegeta‚ Eskom and the Guptas

The Guptas received a R600 million pre-payment for coal from Eskom and used this money to buy the Optimum Coal mine.
Eskom said this was a pre-payment‚ but former Public Protector Thuli Madonsela said in her State of Capture report that this prepayment was irregular.

  • CEO Brian Molefe resigned‚ retired‚ rehired‚ rescinded

Molefe announced he was stepping down as Eskom CEO in November 2016 in the wake of the Tegeta incident and Madonsela report.
In May‚ he returned to Eskom as CEO‚ saying he had just retired.
After Public Enterprises Minister Lynne Brown was forced to explain his reappointment‚ she filed an affidavit saying he had never retired but had taken “unpaid leave”.
The scandal led to the Eskom board firing him at the end of May

  • Revelations in the Denton report‚ published in the Financial Mail

Eskom wasted about R200m over two years by failing to negotiate proper discounts with diesel suppliers. The company paid billions to companies without having received proper invoices‚ in many instances paying for services without evidence of having received the supplies for which it was paying.
Eskom contributed to its own financial problems‚ and contravened the Public Finance Management Act by failing to put proper controls in place.
It consistently overpaid for diesel‚ coal‚ logistics and other contracts.
Eskom employees diverted business opportunities to themselves at the expense of the utility.

Source: News24; timesLive
Image credit: National Geographic

Eskom to get R20bn boost from Chinese bank

Eskom will sign a $1.5bn (R19.78bn) loan agreement with China Development Bank on Thursday, as the state-owned utility powers ahead with its funding requirements for 2017.

Last week, new acting Eskom CEO Johnny Dladla revealed that Eskom had secured 77% of its funding requirements for the 2017/18 financial year.

He said that for the 2016/17 financial year, Eskom increased its borrowings by over R60bn.

“We remain resolute that we will fully execute the required funding for the year, albeit under challenging market conditions,” Dladla said in a statement last week.

“Our liquidity levels remain healthy and Eskom’s financial profile continues to improve and stabilise.

“Backed by the availability of the government guarantees and the stable financial profile, we do not foresee significant impediments in the execution of the remainder of the FY17/18 funding requirement,” said Dladla.

Eskom is expected to use R43.6bn of its guarantee in 2016/17 and R22bn annually over the medium term, Treasury said in its 2017 Budget Review. Eskom has a R350bn guarantee for the 2016/17 year, with an exposure of R218.2bn.

“Gross foreign borrowings are expected to account for the majority of total funding over the medium term, largely as a result of Eskom’s efforts to obtain more developmental funding from multilateral lenders,” Treasury said in the Budget Review.

The borrowings come despite the power utility being downgraded by rating agencies this year, after Moody’s, S&P and Fitch cut South Africa’s sovereign credit ratings.

By Matthew le Cordeur for News24

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