Lesotho Electricity Company On Brink Of Collapse Amid Financial Crisis

Lesotho Electricity Company (LEC) is facing a severe financial crisis, with its current liabilities exceeding its assets by M98.6 million, according to an external audit report.

The report revealed that LEC’s cash reserves had plummeted by M145.8 million, posing a severe threat to the nation’s power supply project.

Currently, LEC relies on electricity imports from South Africa’s Eskom and Mozambique’s EDM, following the shutdown of the ‘Muela Hydropower Station, which normally supplies 72 megawatts of electricity to the LEC.

The station has been undergoing maintenance since 1 October 2024 and is expected to remain offline until the end of this month.

Speaking to the media, Acting Minister of Energy, Mohlomi Moleko, said LEC’s financial difficulties stemmed from alleged gross financial mismanagement, governance failures, and low energy tariffs.

He disclosed that LEC was now reliant on government bailouts, with the government recently injecting M300 million to enable the company to continue purchasing electricity.

“External audit reports contain credible evidence exposing severe governance failures, fraudulent financial practices, and operational inefficiencies that have placed both the company and the national power supply at risk,” Mr. Moleko stated.

He further noted that LEC consistently failed to produce correct and balanced financial statements when audited by the Auditor General.

The external audit report highlighted LEC’s failure to comply with International Financial Reporting Standards (IFRS), leading auditors to issue a disclaimer opinion due to unverified financial accounts.

It also revealed that LEC had failed to adhere to company policies and corporate governance frameworks, including the King IV Code on Corporate Governance.

The report further flagged LEC’s reliance on manual financial journal entries without supporting documentation, creating a high risk of fraudulent transactions.

Mr Moleko pointed out that LEC’s financial woes were exacerbated by its practice of buying electricity from Eskom and EDM at high prices while selling it to consumers at lower prices, leading to significant losses.

He said the LEC had been struggling financially for over a decade and called for an urgent revision of electricity tariffs to make them cost-effective.

To address these challenges, Mr  Moleko said the Ministry of Energy was reviewing the Energy Bill, soon to be presented to Parliament.

The Bill will propose tariff increases to make them sustainable and address conditions for electricity subsidies, ensuring that only vulnerable groups receive assistance.

He said the LEC’s financial difficulties had reached a critical point where the company could no longer afford to purchase electricity, let alone cover operational expenses.

“The root cause remains the high cost of electricity from Eskom and EDM, which is sold to consumers at a loss. There is an urgent need to revise energy tariffs to align more closely with those in South Africa,” he said.

Additionally, he accused LEC of inefficiencies in service delivery, poor responses to technical faults, and failure to maintain critical infrastructure, increasing the risk of system failure and network collapse.

Mr  Moleko also addressed allegations of unfair labour practices within LEC, including wrongful dismissals, prolonged disciplinary hearings, and favouritism in hiring.

He claimed that the company had been “captured” by politicians and assured that the government was working tirelessly to restore proper management.

He said the LEC Board had suspended the entire LEC executive for three months to pave way for investigations.

Those suspended are LEC Managing Director Mohlomi Seitlheko, Corporate Secretary Attorney Khotso Nthontho, Head of Corporate Services Moipone Mashale, Head of Strategy and Growth Limpho Mokhesi, Head of Information Technology Sakhele Mapetja, Head of Finance ‘Makabelo Matsoso, Head of Customer Experience Lebohang Mohasoa, Head of Legal, Risk and Compliance Selebalo Ntepe, Head of Internal Audit Thato Matsoso and Head of Operations Serolo Tikoe.

LEC Board Chairperson, Ntsie Maphathe, who is acting as the MD, also told the media that actions would be taken against individuals found guilty of fraud and financial mismanagement.

He indicated that penalties would vary depending on the severity of each case, with the legal department advising on appropriate measures.

However, the LEC was unable to disclose how much electricity it was currently purchasing from Eskom and EDM, the associated costs, or the selling price to consumers to support its claims of financial losses and the need for tariff hikes.

Source: https://energynewsafrica.com