Finance minister Enoch Godongwana has announced Eskom is exempted from regulations requiring state-owned companies to disclose any expenditure that does not comply with the provisions of the Public Finance Management Act. Eskom is now exempt from disclosing any irregular, fruitless and wasteful expenditure in its annual financial statements for the next three years.
The notice in the Government Gazette on Friday provoked outrage from opposition parties. Western Cape premier Alan Winde said it “flies in the face of all financial checks and balances and good governance”. What made it worse, he added, was that this exemption came from the Treasury, “which is the guardian of our country”. His instinctive reaction probably mirrored what most South Africans would think when reading about this exemption. “Is this 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,” said Winde.
The Treasury on Monday explained the reasoning behind the madness. Irregular expenditure noted in a financial report could result in qualified audit findings, posing a threat to debt agreements between lenders and state-owned entities. This as the Eskom board and the Treasury are working on rehabilitating the power utility’s balance sheet through debt relief.
It is a sad state of affairs when the only way to ‘restore’ the power provider’s books is to exempt it from having to report irregular spending.
The Treasury said in a statement: "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."
Treasury also insisted Eskom would not be exempt from taking appropriate criminal or disciplinary steps because of any losses incurred to date.
Eskom needs to be able to borrow again to invest, and SA needs it to prioritise new transmission infrastructure. However, it is a sad state of affairs when the only way to “restore” the power provider’s books is to exempt it from having to report irregular spending. In a well-functioning world, the solution would have been to get rid of irregular spending. The latest move shows just how deep the rot really lies. While it may in the short to medium term offer a quick fix to help Eskom access funding and manage borrowing, it is just another reminder of how desperate the Eskom situation is. This merely alleviates the symptoms without seeking a solution to the core cause of Eskom’s problems.
The EFF has said it would complain to parliament’s standing committee on public accounts (Scopa) about the exemption. This is a good way to move forward — by ensuring continuous accountability measures remain in place. State-owned entities need to be held more accountable, not less. While Godongwana’s conditions to Eskom that came with the exemption show much thought went into the decision, the South African public’s trust in our authorities remains at an all-time low. The only way to change that is for the government to show it is doing everything possible to expose corruption instead of sweeping it under the carpet.
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