The circus at South Africa’s state-owned power utility, Eskom, continues as the National Treasury announced that it would exempt the company from reporting on irregular and wasteful expenditure for a three-year period.
This comes as the nation finds itself in the worst energy crisis in history, as Eskom imposes daily rolling power cuts every day this year so far.
Through a government gazette on Friday, the Treasury exempted Eskom from section 55(2)(b)(i) of the PFMA and Treasury Regulation 28.2.1 for a period of three years.
Under these exemptions, Eskom is no longer required to disclose financial information related to irregular, fruitless and wasteful expenditure in its financial statements.
The Treasury said that this was done for several reasons, but primarily to protect Eskom’s credit rating and audit opinion, which could have disastrous knock-on effects on the company’s financials and loans were they to move in a negative direction.
“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,” it said.
On Tuesday, Eskom’s Acting Group CEO, Calib Cassim moved to allay the uproar surrounding the decision, saying that the utility is still committed to addressing irregular, fruitless and wasteful expenditure.
He said that the exemption comes under strict monitoring, “PFMA compliance remains a priority as Eskom continues to address irregular, fruitless and wasteful expenditure, including appropriate consequence management proceedings. This exemption will assist in the dialogue with credit rating agencies, the lender community and key stakeholders. Eskom will abide to the conditions and strict monitoring requirements imposed by National Treasury in granting the exemption,” Cassim said.
National 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, 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.”
“The exemption granted to Eskom will 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. If the exemptions were not considered, it would place pressure on the fiscus and limit borrowing powers of the SOE,” the statement further read.
National Treasury said it assured that Eskom is still bound to other strict financial reporting requirements including those of the International Financial Accounting Standards (IFRS), the JSE Debt Listing Requirements and reporting obligations to parliament and oversight structures that arose as a result of Eskom’s debt relief arrangement.
“In addition… the National Treasury’s Office of the Accountant-General (OAG) which sets the accounting standards in government, also engages with the Auditor-General, to ensure that any information on irregular and fruitless and wasteful expenditure not published in the financial statements is still reviewed, but not as part of the financial statements.
Matthew Cruise, Head of Business Intelligence at Hohm Energy, told Business Report on Tuesday that the decision taken by Treasury was alarming.
Cruise said, “The finance minister's exemption of Eskom from the provisions of the Public Financial Management Act is profoundly alarming. This is a similar move made that took place for Transnet at the same time last year, designed to help Eskom earn additional credits and capital for what it needs to do. Regrettably, it opens the door to even greater corruption, with Eskom failing to comply with the Public Financial Management Act for the next three years, as well as the current financial year, which was managed by Andre de Ruyter.”
Cruise further told Business Report, “This is unfortunate in a number of ways, but one of the most significant is that it appears to foreshadow how the ANC will handle the allegations of corruption at Eskom, seemingly keeping them as allegations and not being forthcoming in efforts and action to address the corruption that has hampered South Africa's growth over the last 15 years.”
Energy expert Lungile Mashele told the Cape Times on Tuesday, “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.”
While responding to parliamentary questions from DA leader John Steenhuisen, Public Enterprises Minister Pravin Gordhan said the delays in unbundling transmission at power utility Eskom were due to “external dependencies”.
Gordhan said Eskom was continuing to work on implementing the legal separation of the transmission entity, which remained a key strategic priority and aspect of Eskom’s turnaround plan envisaged under his department’s roadmap.
He said the corporatisation of transmission was completed in December 2021.
“A legally binding merger agreement was entered into between Eskom and its wholly-owned subsidiary, the National Transmission Company South Africa SOC Limited (NTCSA). The reasons for the delays in unbundling transmission substantively relate to external dependencies such as obtaining lenders’ consent, acquiring electricity licences, and designation of the transmission entity as a buyer,” he said.