Cape Town - Finance Minister Enoch Godongwana’s decision to exempt Eskom from the Public Finance Management Act (PFMA) and disclosing any of its irregular, fruitless and wasteful expenditure in its annual financial reports until 2025 has sparked outrage across the country.
The notice of the exemption was gazetted on March 31 by Godongwana, but the power utility has defended the move, clarifying that expenses will now be reported in Eskom’s integrated Annual Report, as opposed to its Annual Financial Statements.
The exemption was requested by Eskom board chairperson Mpho Makwana in the hope of restoring Eskom’s balance sheet and ultimately acquiring a better audit outcome through debt relief while shielding its financial irregularity from investors.
Following National Treasury’s R254 billion debt relief for Eskom, which was announced in the February Budget, Eskom was placed on positive watch by S&P Global, which meant that it could receive a ratings upgrade.
However, some of Eskom’s challenges influencing the risk of a negative qualified audit opinion include: inadequate control systems to timeously detect and record irregular and fruitless and wasteful expenditure; inadequate controls to ensure completeness of assessment of expenditure linked to transgression or supply chain management processes and investigations; and tracking of internal audit and forensic report findings; lack of supporting documentation to substantiate adjustment of opening balances and recording complete and accurate losses linked to criminal conduct.
Eskom said in a statement that it welcomes the exemption as a measure to eliminate corruption.
“With the exemption, the irregular, fruitless, and wasteful expenses will now be reported in Eskom’s Annual Report, as opposed to its Annual Financial Statements. The integrated report is tabled by the Minister of Public Enterprises in Parliament.
“Eskom will continue to respect and co-operate with supervisory authorities, including the Minister of Public Enterprises as its executive authority, the National Treasury, the Auditor-General of South Africa, Parliament and other relevant ministries.
“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 by the conditions and strict monitoring requirements imposed by National Treasury in granting the exemption,” said Eskom’s acting group chief executive, Calib Cassim.
Godongwana granted the exemption “after due consideration of the risk of a possible negative outlook on Eskom’s corporate rating and credit assessment with the credit rating agencies”.
MP Dion George, the DA’s spokesperson on finance, said: “It is unacceptable to hide material financial information from auditors in the hope of obtaining a better audit outcome … We already know that the government is unable to manage any state-owned entities’ responsibly and this attempt to hide the extent of that dysfunction cannot be tolerated. Hiding information on this problem doesn’t make it go away and certainly does not ensure investment; it only serves to promote corruption.”
The announcement comes a few weeks after former Eskom CEO André de Ruyter’s shocking TV interview in which he lifted the lid on endemic corruption at Eskom and alleged ANC elites and ministers were involved in the looting at the power utility.
De Ruyter is expected to appear before Parliament’s standing committee on public accounts (Scopa) to provide more information regarding the allegations he made in his eNCA interview at a date to be determined by the committee.
Without having to declare irregular and fruitless and wasteful spending, George said Eskom had no incentive to fight corruption and Treasury essentially gave a free pass to criminal syndicates in Eskom that it knows operate with political coverage.
The EFF said that Godongwana’s decision was reckless and deplorable considering the extreme levels of corruption encountered, which according to De Ruyter involved senior ANC members of the executive and criminal cartels whose primary interests were to steal billions of rand meant for the stabilisation of Eskom’s electricity supply to the country.
The EFF said: “We will write to the chairpersons of Scopa, the standing committee on finance, and the portfolio committee of public enterprises to seek permission from the Speaker of the National Assembly to convene an urgent joint meeting to receive a detailed report explaining the rationale behind such a nonsensical decision.”
The Organisation Undoing Tax Abuse (OUTA) said it was concerned that this exemption created opportunities for corruption and/or financial mismanagement, given the government’s history of excessive corruption and maladministration as well as the extremely high level of mistrust in the government.
Outa CEO Wayne Duvenage said: “Exempting Eskom from complying with certain sections of the PFMA sends a clear message that the government is not serious about transparency and accountability when it comes to Eskom’s financial management practices.”
Outa and the DA will be getting more information and liaising with their legal teams to consider their options to stop this exemption from going ahead, while the EFF is set to approach the courts to declare the exemption irrational.
Kganki Matabane, CEO of the Black Business Council (BBC), said they were outraged by Godongwana’s decision and were seeking an urgent meeting with him and the deputy president as the leader of government business to sharply raise this serious anomaly.
Western Cape Premier Alan Winde said: “This exemption from Treasury, the guardian of our country and the government’s financial guardrails, flies in the face of all financial checks and balances and good governance.
“The fact that it has been given the go-ahead by the finance minister makes it even more concerning and perplexing. It seems that rather than stopping corruption, it is being formalised at Eskom. This is not moving us away from greylisting. It makes Eskom blackouts financial blackouts too.”