Eskom’s PFMA exemption and minister’s corruption denialism a worrisome combo

Granting Eskom exemption from sections of the Public Finance Management Act shortly after the new minister of electricity, Kgosientsho Ramokgopa‘s claims that corruption is not a key issue at Eskom, has been setting off South Africans’ graft alarms, and with good reason.

Enoch Godongwana, minister of finance, granted Eskom a partial exemption from section 55(2)(b)(i) of the Public Finance Management Act (PFMA) and Treasury Regulation 28.2.1 while declining exemptions under sections 55(2)(b)(ii) and (iii) of the PFMA. This means they would not be required to disclose irregular and fruitless expenditure in its annual financial statements for the past financial year, or the next two years

According to Eskom’s 2022 annual report, its irregular expenditure was R67.1 billion, although most of it was from previous years.

According to National Treasury, this exemption still requires Eskom to disclose financial and non-financial information on irregular, fruitless and wasteful expenditure, but only in its annual report.

This new approach to reporting on irregular and fruitless and wasteful expenditure is in line with the president’s response to state capture and corruption, which noted some of the challenges facing state-owned entities (SOEs) and government departments, the Treasury said on Monday.

Treasury pointed out that it is working with the Auditor-General of South Africa (AGSA) to review the usefulness of the concept of irregular expenditure and focus on identifying corrupt or suspicious expenditure, or expenditure made in bad faith to return to the original intent of the PFMA to let managers manage, while holding them accountable.

Allowing Eskom to report on irregular and fruitless and wasteful expenditure in its annual report and not in its financial statements, Treasury ensures that reporting transparency and accountability is not compromised and still made public as currently required, while mitigating the risks that could arise if these transactions are reported in the annual financial statements.

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Outa concerned exemption violates PFMA

But the Organisation Undoing Tax Abuse (Outa) says it is concerned this exemption goes against the prerequisite of Section 55 (2) (b) (i) of the PFMA, an important law that regulates the financial management of government departments and public entities.

“As an SOE Eskom plays a critical role in providing electricity to South Africa and any decision that affects its financial management could have significant implications for the country’s economy and its citizens,” says Wayne Duvenage, CEO of OUTA.

“Exempting Eskom from complying with certain sections of the PFMA sends a clear message that government is not serious about transparency and accountability when it comes to Eskom’s financial management practices.”

Outa believes that the exemption creates opportunities for corruption and financial mismanagement, which would harm the public interest and given government’s history of excessive corruption and maladministration, there is an extremely high level of mistrust in government.

“While a number of SOEs have been exempted in similar matters in the past, the current level of distrust does not bode well for this decision and with good reason, if you look at recent statements by Ramokgopa that corruption is not a key issue in the dismal performance of some of Eskom’s power plants.”

Given the well-documented history of looting at Eskom, this is clearly untrue and Duvenage says who can blame the public if they do not trust government’s latest move to exempt Eskom from adhering to the PFMA.

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Exemption will lead to more fruitless and wasteful expenditure

He says if this is done to cut back on red tape in an effort to sort out the electricity crisis, one could possibly argue for some exemptions, but Outa is very concerned that this decision will lead to even more fruitless and wasteful expenditure, something that Eskom, the country and its citizens can ill afford.

“Even if the exemptions come with conditions, how can we be sure that there will be accountability, as that was clearly lacking in the past?”

Outa is writing to Godongwana to understand the purpose of these regulations and ensure that they align with the principles of transparency, accountability and good governance in the public sector. Duvenage says once Outa receives an answer from the minister, it will decide on its next steps.

“We cannot allow even more deviations from regulations,” says Duvenage and adds that Outa is still proceeding with legal challenges opposing the Karpowerships and the electricity state of disaster.

“We believe the decision to declare the disaster was irrational, arbitrary and unlawful. We already have all the laws necessary to enable urgent action to address the energy crisis, something generated over the last 15 years by government’s poor planning, brazen corruption and a total lack of accountability. Our country also cannot afford the extremely expensive Karpowership deal,” says Duvenage.

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Sakeliga also ready to go to court

Business organisation Sakeliga is also opposed to the exemption and its attorneys are also writing to Godongwana to demand that he provide reasons for his decision that Eskom does not need to declare irregular, fruitless and wasteful expenditure in its financial statements.

Sakeliga also insists that this regulation be withdrawn immediately and says if this does not happen, it will be compelled to approach the court on an urgent basis.

“There is no clear justification for exempting Eskom from this standard provision which enables the public to properly evaluate its financial situation,” Piet le Roux, CEO of Sakeliga, says.

The organisation is taking on the Auditor General in court later this month to insist that it discloses its management reports which include advanced information on wastage, corruption and other irregularities in all state entities to Sakeliga and the public.

“We oppose the latest step taken by the minister in the same spirit, as it is unconscionable that information about Eskom is withheld from the AG and the public,” Le Roux says.