NOTES TO THE FINANCIAL STATEMENTS - NOTE 44


 

    Group     Company  
    2014
Rm
    2013
Rm
    2014
Rm
    2013
Rm
 
44. Guarantees and contingent liabilities                      
  Eskom issues guarantees for strategic and business purposes to facilitate other business transactions.                      
44.1 Financial guarantees                      
(a) Long-term debt raised by Motraco                      
  Motraco, a private joint venture company between Eskom, Electricidade de Mocambique and Swaziland Electricity Board, owns transmission lines connecting the South African, Mozambican and Swaziland national grids to establish a secure source of electrical power for the Mozal aluminium smelter in Maputo, Mozambique.

Eskom has guaranteed the long-term debt raised by Motraco. At 31 March 2014 the outstanding amount was USD16 million (2013: USD18 million), which translates into R165 million (2013: R167 million). The loans of USD16 million mature on 6 September 2019. The guarantees would be triggered if Motraco was unable to meet its obligations in terms of the long-term debt.

The risk of default resulting from the political risk in Mozambique is mitigated through a guarantee arranged with an established international insurance company, which specialises in facilitating investments in high risk, low income countries.

The risk adjusted credit exposure of Motraco is calculated by applying a rating agency’s annual default probabilities. Applying the default probability of 0.20% (2013: 0.20%), the financial liability in respect of these guarantees is calculated as Rnil (2013: Rnil).

The default probability trend into the future is seen to be positive, and changes in variables will not have a significant impact on profit or loss.

No payments have been made in terms of these guarantees since their inception in 1999.

                     
  The unprovided portion, disclosed as a contingent liability, amounted to 165     167     165     167  
(b) EFC loans to group employees                      
  EFC has granted loans (secured by mortgage bonds on the properties) to employees of the group. Eskom has issued guarantees to EFC to the extent to which the loan values of employees exceed the current value of the mortgage security. At 31 March 2014 the guaranteed amounts were R1 119 million (2013: R1 041 million).

Historically EFC has absorbed any losses incurred, and has not called up any guarantee payments. Eskom’s guarantee exposure is therefore governed by the default probability of EFC, which is influenced by the risk of significant fluctuations in interest rates that might cause employees to default on their repayments.

The risk adjusted credit exposure of EFC is calculated by applying a rating agency’s annual default probabilities. The default probability for the unsecured portion of the EFC loan book (representing 3% of the loan book) is calculated at 27% (2013: 27%), while the secured portion of the loan book (97% of the loan book) is calculated at 0.01% (2013: 0.01%). Applying the combined default probability, the financial liability in respect of this guarantee is calculated at R1 million (2013: R1 million). This amount has been included as a provision in Eskom in the current year, and is included in other provisions. Refer to note 28.

Changes in variables will not have a significant impact on profit or loss.

                     
  The unprovided portion, disclosed as a contingent liability, amounted to         1 118     1 040  
  Summary of financial guarantees                      
  Unprovided portion 165     167     1 283     1 207  
  Amounts provided in other provisions         1     1  
44.2 Other guarantees 165     167     1 284     1 208  
(a) Guarantees to South African Revenue Services (SARS) for customs duty

Customs duty and import VAT are normally due upon declaration of imported goods at the port of entry (harbour or airport). SARS allows Eskom up to a maximum of 37 days after declaration date before the customs duty and import VAT must be settled on the deferment account. SARS requires Eskom to provide a bank guarantee to secure the debt when it becomes due.

                     
  All conditions of the deferral of the customs duty and import VAT have been met. The total amount disclosed as a contingent liability amounted to 183     183     183     183  
(b) Eskom Pension and Provident Fund                      
  Eskom has indemnified the EPPF against any loss resulting from negligence, dishonesty or fraud by the fund’s officers or trustees.                      
44.3 Other contingent liabilities                      
(a) Legal claims                      
  Legal claims are in process against Eskom as a result of contractual disputes with various parties. On the basis of the evidence available it appears that no obligation is present. The claims are disclosed as a contingent liability and
amounted to
50     58     50     58