Irregular spending at Eskom has swelled to R19.6-billion as South Africa’s state-owned power utility comes under pressure to restore its credibility and improve its finances.

Irregular expenditure, or spending incurred in contravention of or not according to applicable laws, “has increased significantly as a result of the cleaning-up exercise” at the electricity producer that generates about 90% of South Africa’s power, it said in a report released on Monday.

The company and its auditors, SizweNtsalubaGobodo, reviewed all open contracts from 1 April 2015 for compliance with the country’s Public Finance Management Act, Eskom said.

The business that’s facing declining demand for power amid tepid economic growth has been at the centre of scandals involving the financing of transactions and awarding of contracts to firms linked to the Gupta family. They are alleged to have used their connections with former President Jacob Zuma to their benefit. Zuma and the Guptas deny any wrongdoing.

“The damage wasn’t done overnight, so cannot be fixed overnight,” chairman Jabu Mabuza, who was appointed in January, told reporters in Johannesburg. “We will have to take short-term pain.”

The electricity producer reported a loss after tax of R2.3-billion for the year ended 31 March from a profit of about R900-million 12 months earlier.

Sales declined 0.9%, while its gearing ratio, which measures debt relative to equity, dropped to 72% from 68%, it said.

‘Liquidity challenges’

“Eskom continues to face significant financial and liquidity challenges,” the company said. This is due to the “high debt burden, low sales growth and increased finance costs. The auditors raised uncertainty that may cast significant doubt on the group’s ability to continue as a going concern.”

CEO Phakamani Hadebe, who started earlier this year, has pledged to improve governance as the first step in stabilising the business.

Pay negotiations with labour that started two months ago resulted in protests and power cuts after the utility said it couldn’t offer an increase to workers. Eskom backed down and has most recently tabled a three-year deal with raises of about 7% annually, compared to the current inflation rate of 4.6%.