The decision to exempt Eskom from disclosing its irregular, fruitless and wasteful expenditure has been roundly criticised, but the Treasury insists it allows the power utility to manage its borrowing costs.
A notice in the Government Gazette of March 31 by finance minister Enoch Godongwana has exempted Eskom from having to disclose in its annual financial reports for three years any irregular, fruitless or wasteful expenditure, starting from the financial year that ended on March 30. It will still report these in its annual integrated report.
Energy expert Lungile Mashele said though National Treasury may have considered the risk of a potential credit rating downgrade, the move “does not provide any comfort”.
“If I were a creditor or a ratings agency, such a deviation or an exemption would give me cause for concern and would require further due diligence on Eskom’s systems, controls and supporting documents.”
Mashele said the auditor-general and parliament’s standing committee on public accounts (Scopa) should monitor, oversee and have access to bid documents and prices for emergency procurement at Eskom.
“The auditor-general and Scopa should have real-time access to the relevant information, data, bid documentation and prices, evaluations and adjudication decisions,” Mashele said.
Prof William Gumede of the Wits School of Governance, said government interventions should rather be centred on allowing the power utility to directly purchase diesel, protect it from labour action and enable processes making it easier and quicker to dismiss those implicated in corruption.
Gumede said the move by Gondongwana seemed to take away accountability and oversight, which are key in a democracy.
“We must have oversight, in some form or another, the auditor-general must still audit under emergency circumstances. For example during Covid-19, the auditor-general still audited but differently,” Gumede said.
He said the interventions by government at Eskom have to be designed in a way that “it allows quicker accountability — not less accountability”.
“Emergency measures are not about taking accountability away, it’s about being able to intervene quicker, with the oversight still being there — even though not in a traditional way,” Gumede said.
He believed Eskom should still disclose its wasteful, irregular and wasteful expenditure “even if it comes out later, but there could still be an explanation”.
“Because it’s taxpayers’ money, we can never have an argument to say there can’t be accountability, things can’t be explained ... It has to be explained and that’s what a democracy is about,” Gumede said.
This exemption from Treasury, which is the guardian of our country and government’s financial guardrails, flies in the face of all financial checks and balances and good governance ... it seems rather than stopping corruption, it is being formalised at Eskom.
— Alan Winde, Western Cape premier
Western Cape premier Alan Winde said he was “completely outraged at the move” by Godongwana.
“This exemption from the Treasury, which is the guardian of our country and government’s financial guardrails, flies in the face of all financial checks and balances and good governance ... It seems rather than stopping corruption, it is being formalised at Eskom,” Winde stated.
He said the move seemed like “an attempt to protect the mafias which are holding the company hostage”.
“What are they trying to conceal? This is a major blow to transparency, which is critically needed in our country, especially at state-owned entities, many of whom are in a shocking state. The power utility cannot be allowed to evade accountability.”
Godongwana granted Eskom an exemption from regulations under the Public Finance Management Act (PFMA) requiring state-owned companies to disclose any expenditure that does not comply with the provisions of the act for three financial years.
The Treasury, however, said accountability would not be compromised because irregular, fruitless and wasteful expenditure would still be reported on in Eskom’s annual report but not in its financial statements.
The decision to exempt would mitigate “the risks that could arise if these transactions are reported in the annual financial statements”, the Treasury said in a statement,
“The exemption also gives Eskom additional time to comply with the new reporting requirements on irregular and fruitless and wasteful expenditure. Eskom is not exempt from ensuring it takes effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure.
“Furthermore, it is not exempt from taking appropriate criminal or disciplinary steps because of any losses incurred to date. All material losses through criminal conduct and any losses recovered or written off from irregular expenditure will still need to be reported in the annual financial statements.”
If these exemptions had not been granted, it would have limited Eskom’s borrowing power, said the Treasury.
“A major risk of having non-material, non-corrupt transactions reported in the annual financial statements includes 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.”
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