Tag: SOEs

ACDP shocked at extent of financial loss by Eskom

The ACDP is shocked at the extent of the financial loss suffered by Eskom over the past financial year. While we were expecting a slight loss following my question to acting CFO Calib Cassim in April (when he indicated that the utility would be “below breakeven”), we are shocked at the extent of the loss – a net loss after tax of R2.3bn, down from a R0.9bn profit in 2017.

This poor financial state off an asset base of approximately R700bn is disgraceful and is largely due to the looting, corruption and mismanagement at Eskom, the evidence of which we heard during the parliamentary inquiry. 

As Eskom CEO Phakamani Hadebe said, it is not normal for the SOE to have had ten CEOs and six boards in the last ten years. However, this, in our view, is was what was needed to accomplish the capture of Eskom, and facilitate its looting. 

It is also shocking that the amount of wasteful and irregular expenditure amounts to R19bn, up from R3bn last year (but with investigations into this item going back to 2012).

The huge debt owed by municipalities running into billions has added strain to Eskom’s financial state. These funds must be collected  and errant municipalities must not be protected, particularly in the run-up to next year’s elections.

The ACDP calls on Eskom to ensure that former board executive directors, including Brian Molefe, Anoj Singh, and Matshela Koko, are held criminally and civilly liable for the losses suffered by Eskom. Board directors that failed to exercise their fiduciary duties and allowed the looting to take place on their watch must also be declared delinquent directors; this to prevent them from ever serving as board directors again. 

In addition, all ill-gotten gains obtained through fraud and corruption or other nefarious means must be recovered, particularly from Gupta-related companies and individuals – wherever those funds are being hidden. Those implicated individuals and companies must also face criminal charges. We cannot afford to wait for the outcome of the Zondo Commission of Inquiry into state-capture. Action must be taken now! 

In this regard, we welcome the criminal charges that have been laid against private companies that have illegally benefitted from Eskom contracts, including McKinsey and Trillian Capital. 

We also trust that the new Eskom Board will succeed in its turn-around plan, and restore public trust and investor confidence in the utility. 

Lastly, the ACDP calls on Parliament to expedite the finalisation of the inquiry into state-capture at Eskom. If other portfolio committees have been busy during this period, then,  given the urgency of this matter, and the poor financial state of Eskom, it is imperative that the Public Enterprises Portfolio Committee meet and finalise its report as soon as possible. The committee also needs to urgently obtain a full briefing on the financial statements released by Eskom today.


ISSUED BY: STEVE SWART MP
23 July 2018

Hold delinquent board members of SOEs to account

QUESTION TO THE DEPUTY PRESIDENT BY STEVE SWART MP

“Whether he has taken any steps since 27 February 2018 to improve the lack of accountability and enforcement of sanctions against board directors and management of state-owned enterprises (SOEs), given their failure to comply with laws, codes and internal processes, as highlighted in various reports, including the Public Protector State of Capture report, as well as various Parliamentary inquiries, including that of the Portfolio Committee on Public Enterprises and that of the Ad hoc Committee on the SABC Board?”

REPLY BY DEPUTY PRESIDENT, MR DAVID MABUZA

“In the State of the Nation Address (SONA) the President highlighted some of the steps that have been undertaken at the time to address government’s failures in state-owned companies. Among others, he mentioned the following:

Action has been taken at Eskom to strengthen government, root out corruption and ensure that work to restore its financial position is implemented as a matter of priority. The Commission of Inquiry into State Capture, headed by the Deputy Chief Justice is expected to commence its work soon. This will ensure the extent and the nature of the state capture is established, that confidence in the public institutions is restored, and that those responsible for any wrong-doing are identified.

As part of the SONA implementation process, the following steps have been taken:

In respect of Eskom, a new board has been appointed, an acting CEO and CFO have been appointed to strengthen governance, disciplinary action has been taken against at least 8 senior managers to start the process of rooting out corruption and to stabilise the financial situation in Eskom. As action in terms of this intervention was intensifying, some of these individuals opted to resign from their positions before disciplinary hearing would even sit to determine their guilt. The process of appointing a full-time CEO and CFO is almost complete. The issues pertaining to coal supplies in some of the power stations is receiving attention as we speak.

All boards of state owned companies are in the process of being reviewed and strengthened. At Denel, changes have been effected with the announcement of a new interim board. So is the case with Prada. Boards of SOEs have been directed to focussing on all government failures that have impacted negatively on their performance. In addition, boards will prioritise recovery of stolen funds and undertake a review of all contracts to identify those that may have been improperly awarded. Where there are criminal offences, charges must be brought against those individuals through the relevant authorities to ensure that those that are involved are brought to book.

The instances of maladministration and corruption at state-owned companies identified by reports from the office of the Public Protector, including Parliamentary inquiries, have assisted a great deal in highlighting the extent of the problem and the Executive is taking these matters seriously.

In instances where forensic and criminal investigation have already been conducted, steps have been taken to ensure that individuals identified by this investigation at the board and executive level are removed through due processes, including suspension and the institution of disciplinary hearings.

The President will establish an SOC council and will announce its mandate in due course that will help strengthen the work of the state owned companies. This is work in progress. Progressively Ministers will be taking action to strengthen governance, accountability, transparency and improved performance and financial stability of our state owned companies as has been indicated before.

Sooner, rather than later, the dependence by SOCs on the fiscus must be totally removed. In fact, commercially owned SOCs should be paying dividends to government. We undertake to keep honourable members briefed as this programme of reform unfolds in these SOCs.”

SUPPLEMENTARY QUESTION BY CHERYLLYN DUDLEY MP (ON BEHALF OF STEVE SWART MP)

“I’ll be responding on behalf of my colleague, Steve Swart, who sends his apologies.  I have noted your response and am going to read from his response:

It is encouraging that various criminal investigations are ongoing against board directors and management of state-owned enterprises arising from the allegations of state capture. We are also pleased that the Hawks and Asset Forfeiture Unit have made progress in this regard and the AFU obtaining preservation orders running into millions of rand.

What is lacking, however, is the enforcement of sanctions of board directors and managers in terms of both the Public Finance Management Act as well as the Companies Act. Sadly, time after time, board members and management are replaced after running SOEs into the ground and are then redeployed to other SOEs.

The ACDP believes that besides holding those board members criminally and civilly liable for losses sustained by those SOEs, serious consideration should be given to have these directors declared ‘deliquent directors’ in terms of section 162 of the Companies Act. This will prevent directors who have failed to fulfil their fiduciary duties to SOEs from ever being able to serve as directors again. Would the Deputy President support these suggestions?”

REPLY BY DEPUTY PRESIDENT, MR DAVID MABUZA

“Well, it goes without saying that if you were a board member and certain things happened under your watch, obviously, somewhere, you must take responsibility. It is not enough just to leave your role as a board member. You must, at a certain point, account for certain things that have happened under your watch. So, I support that.

Thank you.”


QUESTION TO THE DEPUTY PRESIDENT BY STEVE SWART MP
25 April 2018

Budget 2018: Do more to reduce corruption and wasteful and irregular expenditure

The ACDP believes more must be done to reduce corruption, and wasteful and irregular state expenditure.

In the midst of this season of hope with the election of President Ramaphosa, we are today faced with a very tough budget – a legacy of the looting, plundering and maladministration that took place under President Zuma.

Thankfully, economic growth is set to improve from October’s projected 0.7per cent of GDP to 1.3 per cent, due to heightened investor and business confidence. This will hopefully translate into improved revenue collection. The central fiscal objective must be to stabilise the national debt-to-GDP ratio by closing the budget deficit. One can achieve this by not only increasing revenue, but by also reducing state expenditure.

The ACDP believes that far more can be done in this regard by addressing corruption, and reducing wasteful and irregular expenditure. We believe that more resources should be given to the Hawks, National Prosecuting Authority, the Asset Forfeiture Unit, and Special Investigating Unit in order to recover misappropriated and stolen funds and jail those responsible.

The projected reduction of tax revenue of R50.8 billion in 2017/18 will result in the fiscal slippage we were warned against. The figures snowball in the outer years – with tax revenue projected to fall short of projections by R69.3bn in 2018/19 and R89.4bn in 2019/20.

The consolidated budget deficit for 2017/18 is expected to increase from February’s estimate of 3.1% to 4.3% of GDP – or from R149 to R203 billion. The concern is that, in contrast to projections set out in February’s Budget, the revised projections are set to remain at this elevated levelover the medium term (previously the budget deficit was set to decrease).

Debt service costs remain the fastest growing budgetary item – set to be R163.3 billion for 2017/18. The total gross loan debt is set to reach the astonishing figure of R3.415 trillion or 59.7 per cent of GDP by the outer year 2020/21. This is a matter of great concern, and is not sustainable in the long run given the relatively small tax base in the country. It will also crowd out other socio-economic spending priorities.

While we appreciate that a commission of inquiry will look into the tax affairs, why don’t we rather implement those useful recommendations of the Davis Tax Commission.

The contingency reserve has been pared down to R16bn over the next three years. The expenditure ceiling has already been breached with the SAA bail-out.

We also know that SOE’s and particularly Eskom present significant threats not only to the fiscal outlook, but to the entire economy, given the substantial government guarantees that have been granted. Yet we see ongoing poor governance, wastage and irregular expenditure at various SOEs such as being unearthed in the Eskom Inquiry.

On this score we are also opposed to the nuclear energy build programme. Not only is it unaffordable, but it is also unnecessary given Eskom’s surplus energy capacity.

We also do not support the continued bailouts for SOE’s, such as the R10 billion given to SAA, which may be partly financed by selling the ‘crown jewels’ – government’s stake in Telkom, as well as the R20 billion needed by Eskom.

We regret that it has been necessary to increase personal taxes, VAT and the fuel levy, in order to balance the books. Had government been better stewards of state finances, and not allowed state capture and widespread corruption, this would not have been necessary.”


ISSUED BY: STEVE SWART MP
21 February 2018

ACDP calls for inquiry into NECSA

ACDP Member of Parliament Cheryllyn Dudley, responding to an engineering study prepared for the South African Department of Energy and Eskom, today said that “the ACDP is calling for an inquiry into the South African Nuclear Energy Corporation SOC Limited.”

NECSA is the state-owned public company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences.

“This study,” Dudley says, “vindicates what many have been saying for decades and has disproved ‘myths’ credited to former Eskom executives about the limits and costs of renewable energy capacity in South Africa.”

The study was commissioned by the Deutsche Gesellschaft Für Internationale Zusammenarbeit (GIZ) – under the department’s South African-German Energy programme.

The study contains solid research that confirms the South African power system is sufficiently flexible to handle large amounts of variable wind and solar PV generation. In addition combined cycle gas turbines (CCGTs) and open cycle gas turbines proposed in the Draft IRP 2016 Base Case can be factored in.

“The ACDP is calling on Parliamentary Committees to seriously consider the implications of the study especially in light of Deputy President Cyril Ramaphosa’s statements in Davos that South Africa cannot afford nuclear expansion.

We call on the Minister to discard the 2008 Nuclear Energy Policy Framework, approved by Cabinet and Gazetted without any adequate public or Parliamentary participation. We further call for a full and dedicated inquiry into the billions of rands that have been spent by Eskom and at NECSA on nuclear development and the role of nuclear in the massive corruption scandals at Eskom and other SOEs – especially NECSA.”

The report states that up to 2030, the operating and emergency reserve will still be sufficient to balance the increased variability of wind and solar PV generation capacities proposed in the draft IRP 2016 Base Case and confirms that large penetration levels of wind and solar PV can be handled by the South African power system from an active power balancing point of view, at moderate additional costs.

Dudley further said that “civil society has long argued for decentralised Renewable Energy (RE), owned and operated at regional or local level as a means of ensuring energy security, providing employment (local jobs) and cutting down on reliance on the failing grid run by a monopoly.

The ACDP urges the department to take note of the recommendations in the report and to ensure the secure and cost-efficient operation of the power system.”


ISSUED BY: CHERYLLYN DUDLEY MP
2 February 2018