Eskom’s controversial fruitless and irregular exemption will be back — Treasury
South Africa’s National Treasury is adamant on reinstating the controversial measure it had previously granted Eskom to exempt it from reporting irregular, wasteful, and fruitless expenditures over three years, Business Times reports.
Acting Treasury director-general Ismail Momoniat told the publication the exemption remained “in play”, arguing it was only temporarily set aside to address concerns raised by the Auditor-General and to allow for public consultation.
He denied the exemption would allow Eskom to compromise on its reporting responsibilities.
“It is about putting the information in a report but not in the financial statements,” Momoniat stated.
He also said there was no plan to withdraw a similar exemption granted to Transnet exactly one year before the publication of Eskom’s exemption.
Transnet’s exemption went largely unnoticed until government sought to give Eskom a similar reprieve.
“We don’t intend to withdraw that. We don’t have any grounds to,” Momoniat said. “We take the concerns expressed in Parliament and so on to review our process.”
“With Transnet’s one, there was a lot of engagement with the Auditor-General last year, and all indications are that it has assisted Transnet on the financial side,” said Momoniat.
The gazette granting Eskom’s exemption was published on 31 March 2023 and quickly drew the attention of the media and the general public.
It exempted Eskom from disclosing any irregular, wasteful, or fruitless expenditure amounts in its financial statements for the 2022/2023, 2023/2024, and 2024/2025 financial years, as is typically required of state-owned entities under the Public Finance and Management Act (PFMA).
Eskom’s board had sought the exemption to assist in its dialogue with credit rating agencies, the lender community, and “key stakeholders”.
Board chair Mpho Makwana said if Eskom did disclose the information in its financial statements, it would risk a qualified audit, which could damage the utility’s credit rating.
Mpho Makwana, chairman of Eskom Holdings Ltd., listens at the 2011 CERAWEEK conference in Houston, Texas, U.S., on Thursday, March 10, 2011. Photographer: F. Carter Smith/Bloomberg
Finance minister Enoch Godongwana announced the exemption had been withdrawn “for now” during a joint sitting of various parliamentary committees on Wednesday, 5 April 2023.
Godongwana said the government would hold detailed consultations with the Auditor-General and Eskom’s auditors to ensure that the framing of the proposed exemption was proper and maintained “tightened” checks and balances for corruption.
As part of the minister’s official withdrawal of the gazette published on Thursday, 6 April 2023, he also invited comments from the public on the proposed exemption.
“The comment should preferably be in respect of the technical aspects of the proposed exemption that relate to the applicable accounting principles, including oversight and preventative measures to reduce the scope of corruption,” said Godongwana.
Confusingly, the gazette stated that the comment period would end on 21 April 2022.
Presumably, the minister had meant 21 April 2023, effectively giving the public and concerned stakeholders two weeks to provide their input.
Fierce public resistance
Eskom has reiterated that it would still be required to disclose the expenditures in its integrated annual report.
However, several labour unions, opposition political parties, civil organisations, and Eskom analysts remained unconvinced.
Many were concerned that the exemption was a way to sweep corrupt activities at the utility under the carpet and keep Eskom from being held accountable for how it handles taxpayer money.
Several organisations threatened legal action over the move, including Afriforum and Sakeliga.
Hurter Spies director Daniël Eloff argued the exemption would undoubtedly be challenged successfully in court.
“You can’t use a delegated power in terms of an act to circumvent the purpose of an act,” Eloff said.
One bond market expert told Business Times that the government’s belief that the exemption would aid Eskom’s credit rating was misguided.
“I don’t know how the Treasury thinks rating agencies are so gullible that they are going to effectively interpret the waiver of reporting irregularities as credit neutral,” they said.
“It’s quite the opposite. The agencies will inevitably discount into their Eskom rating irregular and wasteful expenditure, as well as factor in — as the waiver implies — poor governance, which is net credit negative.”
“The waiver makes no sense, the rating agencies will see right through it,” they added.
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