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Treasury pulls the plug on Eskom bid for exemption

Minister of finance delivers Mid-term budget speech at City Hall in Cape Town.

Finance Minister Enoch Godongwana has made a final determination that Eskom not be granted a partial exemption from disclosing irregular, fruitless and wasteful expenditure and material losses from criminal conduct in its annual financial statements. Picture: Phando Jikelo/Africa News Agency

Published Jun 8, 2023


Cape Town - Eskom must first get its house in order before wanting to be partially exempt from disclosing irregular, fruitless and wasteful expenditure in its annual financial statements.

The power utility was again dealt a blow after Finance Minister Enoch Godongwana refused to grant it the exemption, saying it needed to first ensure that its anti-corruption strategy was credible and had the support of key stakeholders like investors, lenders, suppliers, customers, and the public.

The National Treasury confirmed the decision was made after consulting with the Auditor-General and considering all public comments on the matter.

“The Minister recognises the commitment of the Eskom board and management to fight and expose fraud and corruption, and the additional compliance and reporting burden facing Eskom and other State-Owned Entities (SOEs).

However, it is the view of the Minister that Eskom needs to do more operationally to reduce the scope of fraud and corruption before such exemption can be considered, and for it to be effective and the commitment of the Eskom board and management to fight and expose fraud and corruption,” Treasury said.

Two months ago Godongwana issued a government gazette allowing the exemptions for Eskom in its annual financial statements for 2022/23, 2023/24, and 2024/25.

At the time the Treasury explained that if the exemptions were not considered, it would place pressure on the fiscus and limit Eskom’s borrowing powers.

However the decision was met with concern that it could create an enabling environment for further corruption.

Godongwana then withdrew the exemption in order to undertake further consultations and allow for public comment.

Following that process, 56 comments were received, with 23 formal correspondence and 33 through emails, covering a broad spectrum of accounting and reporting, auditing, governance, legal principles, and public interest issues.

“The National Treasury also engaged with audit firms, professional auditing and accounting bodies, a rating agency, and other relevant authorities to discuss the challenges and seemingly onerous compliance reporting requirements applicable to SEOs such as Eskom.

“Although irregular expenditure does not automatically equate to fraud and corruption, many comments submitted view irregular expenditure as an indicator of how SOEs are managing their finances.

“Accounting and auditing experts noted that SOEs are currently subject to more onerous accounting and reporting standards than commercial companies, as they are required to comply with both the Public Finance Management Act (PFMA) and the Companies Act, as well as the International Financial Reporting Standards (IFRS) and JSE Debt Listing Requirements. In addition, as part of the Eskom debt relief arrangement, the Minister of Finance has instituted additional reporting obligations on Eskom, which the entity will be required to submit to Parliament and oversight structures.”

Eskom said various initiatives have been implemented to deal with fraud and corruption, past and present.

“Eskom accepts the decision by the Minister of Finance not to grant a partial exemption from reporting in terms of section 55(2)(b)(i) of the Public Finance Management Act (PFMA) and will continue to report in terms of the National Treasury instructions in this regard.

Due to legacy issues, it is expected that the auditors will continue to qualify Eskom’s financial statements on 31 March 2023 regarding the completeness of information reported in terms of section 55(2) (b)(i) of the PFMA,” said Eskom.

Economist, Professor Bonke Dumisa said it was the right move by the minister.

“It was not meant to protect wrongdoing but he had to withdraw, the public outcry was huge. As it is now, a number of Eskom senior managers are in court for sabotaging Eskom. If ever you had that going on and not subjected that entity to all the checks and balances, people could think it may have promoted and encouraged all this wrongdoing.

“The purpose, together with the appointment of the electricity minister, was to deal with Eskom’s challenges to solve the energy crisis swiftly. For example, if they needed to purchase something for quick repairs, things would not be subjected to all the red tape linked to the PFMA.

(However) They (Eskom) need to have some extra steps in place, not to open the floodgates of corruption and to make sure they are still able to identify many of these wrongdoers and take them to court,” he said.

The Southern African Faith Communities’ Environment Institute (SAFCEI) said it was in full support of the Minister’s decision.

“Until Eskom demonstrates that it has tackled the corruption at the heart of our energy crisis, causing needless suffering daily, it should not be allowed to “balance its books” at the expense and to the detriment of those most vulnerable in society,” said SAFCEI executive director, Francesca de Gasparis.

Cape Times