Cape Town - Finance Minister Enoch Godongwana’s decision to exempt Eskom from reporting on wasteful, fruitless and irregular expenditure until 2025 will allow for a relaxed regulatory environment, reminiscent of the Covid-19 pandemic, which resulted in “rife and opportunistic” criminality and corruption.
This is according to some experts after Godongwana issued a government gazette allowing the exemptions for Eskom in its annual financial statements for 2022/23, 2023/24, and 2024/25.
The Treasury believes that if the exemptions were not considered, it would place pressure on the fiscus and limit Eskom’s borrowing powers.
It granted Eskom the exemption following the power utility’s board chairperson Mpho Makwana’s request for an exemption and a departure from Treasury regulation.
“The effect of such exemption and departure approval, collectively, is that material losses due to criminal conduct, irregular expenditure and fruitless and wasteful expenditure, and appropriate consequence management (including criminal prosecutions, disciplinary charges and losses recovered or written off), will continue to be reported by Eskom,” the letter read.
“However, those particulars will no longer be subject to a full statutory audit by the auditor-general. As such, the threat of a qualified audit for reasons relating to PFMA non-compliance will be alleviated.
This will provide relief to Eskom in circumstances where its financial position is constrained and the cost of borrowing is a major concern in its financial recovery efforts.”
Experts believe the move was closely linked to the energy crises being declared a National State of Disaster aimed at preventing an electricity collapse or a blackout.
Like with the Covid-19 State of Disaster, energy experts, activists and opposition parties have raised concerns that this decision could only open doors for corruption.
But the Treasury has stuck to its guns, saying: “This exemption still requires Eskom to disclose financial and non-financial information on irregular, fruitless and wasteful expenditure but only in its annual report. All other institutions are required by law to report irregular as well as fruitless and wasteful expenditure in their annual report and the annual financial statements as set out in the PFMA section mentioned above.
“A major risk of having non-material, non-corrupt transactions reported in the annual financial statements include a higher likelihood of qualified audit opinion (which other listed companies do not face) that triggers loan covenants, which will likely further increase Eskom’s cost of borrowing and may result in additional fiscal pressure from Eskom’s debt burden should the entity be unable to negotiate lender waivers for these covenants.”
It said the exemption granted to Eskom would enable it to continue to fund its balance sheet and still maintain accountability, transparency and reporting requirements in its annual reports and annual financial statements.
Energy expert Lungile Mashele said: “Eskom in its request cites the risks related to a qualified audit opinion arising from inadequate systems, controls and a lack of supporting documents.
Eskom fears these may have an adverse effect on its credit rating, hence the request for an exemption for the next three years.
“If I were a creditor or a ratings agency such a deviation or an exemption would already give me cause for concern and would require further due diligence on Eskom’s systems, controls and supporting documents.
This exemption does not provide any comfort. Future emergency procurement should be monitored and overseen by Parliament’s standing committee on public accounts (Scopa) or an ad hoc parliamentary committee and the auditor-general. They should have real-time access to the relevant information, data, bid documentation and prices, evaluations and adjudication decisions.”
Economist, Professor Bonke Dumisa, said because of the challenges faced by the power utility in keeping the lights on, some quick decisions would have to be made that may not be compliant with underlying regulation to save the economy.
“I don’t think it will have an extra problem with the economy already down because of Eskom. The sooner they sort out load shedding, the better. This is not creating a loophole for people to plunder the system.”
Eskom’s acting group chief executive, Calib Cassim, said the exemption will assist with credit rating agencies and lenders.
“PFMA (Public Finance Management Act) compliance remains a priority as Eskom continues to address irregular, fruitless and wasteful expenditure, including appropriate consequence management proceedings.
Eskom will abide to the conditions and strict monitoring requirements imposed by National Treasury in granting the exemption.”
South Africa First Forum (#SA1stForum) expressed “horror and deep concern” about the decision, saying if this is allowed to stand, “our country can truly be bankrupted without us knowing it.
This must leave all South Africans with a deep sense of disquiet because on the face of it, it gives Eskom carte blanche to spend or misspend our hard-earned taxpayer monies the way they deem fit.”
Cape Times