Finance Minister Enoch Godongwana. (David Harrison/M&G)
Finance Minister Enoch Godongwana has withdrawn the controversial gazette granting Eskom a partial exemption from the Public Finance Management Act (PFMA).
The decision, revealed during a meeting with MPs on Wednesday, was taken after an “intense” discussion with auditor general Tsakani Maluleke the previous day. According to Godongwana, Maluleke said during the discussion that the auditor general ought to have input on how such gazettes are framed.
The gazette has been withdrawn pending detailed consultations with the auditor general, as well as Eskom’s auditors, Godongwana said.
According to the gazette, Eskom would not have to disclose irregular, wasteful and fruitless expenditure in its annual financial statements — although the utility would still have to do so in its annual report. The exemption applies to the 2022-23, 2023-24 and 2024-25 financial years.
All other institutions are required by law to report irregular as well as fruitless and wasteful expenditure in both their annual report and their annual financial statements.
The minister granted a similar exemption to Transnet last year. Together, Eskom and Transnet were far and away the biggest targets of state capture. According to the Zondo report, of the estimated R57 billion syphoned from the state during the period, 97% came from these two entities, which are now at the heart of the country’s current economic woes.
The exemption received major blowback, including from the Democratic Alliance. “The decision to grant Eskom this exemption is tantamount to an admission that corruption within the entity must be accepted as a given and that solutions to rolling blackouts will come at criminally induced premiums,” DA MP Dion George said in a statement.
Trade union federation Cosatu has also hit out at the decision, accusing the treasury of facilitating another round of state capture.
On Wednesday, Godongwana acknowledged the public’s outcry over the exemption, but insisted that it was not granted to allow Eskom to conceal any corruption. Instead it would further protect the fiscus.
“We had to ask ourselves the question: ‘If Eskom’s financial statements are being constrained by these irregularities, what are the implications for Eskom’s cost of capital? If they cannot raise that capital, what are the implications for the fiscus?’ So we look at it from a fiscal sustainability eye,” Godongwana said.
In the budget, tabled in February, the treasury proposed that Eskom receive R254 billion in debt relief over the next three years.
The exemption was requested by Eskom board chair Mpho Makwana in a letter dated 9 March.
The exemption, the letter stated, will still require Eskom to report on material losses caused by criminal conduct, irregular expenditure and fruitless and wasteful expenditure and to take the appropriate measures in response. But those particulars will no longer be subject to full statutory audit by the auditor general.
“As such, the threat of a qualified audit for reasons relating to PFMA non-compliance will be alleviated. This will provide relief to Eskom in circumstances where its financial position is constrained and the cost of borrowing is a major concern in its financial recovery efforts.”
The consequences of a qualified audit for the utility are severe, the letter noted. “It could possibly include a downgrade of Eskom’s corporate rating and baseline credit assessment by credit rating agencies and breaches of Eskom’s debt covenants.”
Godongwana said on Wednesday: “We appreciate that South Africans are quite aggressive and vigilant against corruption … We take that as a positive step. We also take it as a positive step because part of the challenge we are facing with the greylisting is the effectiveness — our ability to deal with corruption.”