Eskom’s accounting exemptions will come back to bite us, exacerbate corruption

Eskom’s exemption from aspects of the Public Finance Management Act (PFMA) will do more harm than good, according to experts.

Apart from exempting the utility from accountability, it will increase its risk of a potential credit rating downgrade and kill investor confidence in South Africa.

Investors would have already noted Eskom’s system status report, which put its likely risk scenario at red alert (worst case) of “2 001 [megawatts] short to meet demand and reserves” for the next year.

Last Friday, the power utility was exempted from having to disclose irregular, wasteful and fruitless expenditure in its annual financial statements until 2025.

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The exemption was made in terms of Section 55 (2) (b) (i) of the PFMA of 1999 and Treasury Regulation 28.2.1 of Section 76 of the Act and published in the Government Gazette by Minister of Finance Enoch Godongwana.

‘Undermines transparency’

Political and economic analyst Daniel Silke said this was concerning and undermined the transparency necessary in dealing with “this particular state enterprise, given its rather dismal history of management”.

National Treasury last year granted state-owned logistics agency Transnet exemption from complying with the Preferential Procurement Policy Framework Act regulations.

“Recording of any losses from criminal conduct, any irregular, fruitless and wasteful expenditure and any losses recovered or written off in the annual report,” according to a document on the government page under Public Finance Management Act: Exemption: Transnet SOC Ltd.

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This, according to Silke, has serious implications for the broader state-owned enterprise sector within the country; “for investor confidence in SA as well. I think it points to a lack of sensitivity”.

“It is extremely disappointing to see this kind of issue presented. I think it also undermines the role of the Minister of Electricity Dr Kgosientsho Ramokgopa.

“His job has just been complicated to a great degree. With this kind of action, he is going to lose personal credibility as the new front face of the energy recovery programme in SA.”

Eskom following Transnet route

Energy analyst Chris Yelland said the financially distressed Eskom was following the same route Transnet took for the same reasons, by trying to avoid a qualified audit so as not to create problems with their lenders.

In a response letter to Eskom chair Mpho Makwana, Treasury noted challenges the power utility raised on the risks of a qualified audit opinion due to “inadequate systems of controls to timeously detect and record irregular and fruitless and wasteful expenditure”.

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“Inadequate controls to ensure completeness of assessment of expenditure linked to transgression of supply chain management processes, investigations and tracking of internal audit and forensic report findings,” Godongwana said.

“It is also understood that the risk of a qualified audit outcome may have a negative outlook on the entity’s corporate rating and credit assessment with the credit rating agencies.”

‘No comfort’

Energy analyst Lungile Mashele said Eskom feared these may have an adverse effect on its credit rating, hence the request for an exemption.

“If I were a creditor or a ratings agency such a deviation or 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,” she said.

“Future emergency procurement should be monitored and overseen by [the standing committee on public accounts] or an ad hoc parliamentary committee and the auditor-general.

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“They should have real-time access to the relevant information, data, bid documentation and prices, evaluations and adjudication decisions.”

Greenpeace Africa Climate and Energy campaigner Thandile Chinyavanhu said: “SA needs action, not smoke and mirrors, and most certainly not more corruption from Eskom.

“The announcement has raised more questions than answers. Government needs to answer for what this means in terms of the state of disaster.”

Info

Eskom must still report:

• a) any material losses through criminal conduct.
• b) any criminal and disciplinary steps taken as a consequence of such losses or irregular expenditure, or fruitless and wasteful expenditure.
• c) any losses recovered and written off.

– Minister of Finance Enoch Godongwana.

– reitumetsem@citizen.co.za