Finance Minister Enoch Gododngwana. (Dwayne Senior/Bloomberg via Getty Images)
Finance Minister Enoch Godongwana has come under fire from energy experts, trade unions and opposition political parties for his decision to exempt Eskom from reporting its irregular expenditure.
In an attempt to restore Eskom’s balance sheet through debt relief and enable the utility to borrow again to invest in new transmission infrastructure, Godongwana exempted Eskom from reporting irregular expenditure in its annual financial reports — but it will report it in Eskom’s integrated report.
Both reports are read in conjunction for a complete overview of the financial state of the utility at the end of March every year.
Critics argued that Godongwana was enabling the utility to go in unlawful agreements and misuse the energy state of disaster funds.
But the treasury said the exemption, which was issued in response to a letter from Eskom board chairperson Mpho Makwana, amounts to a technical change in terms of where and how Eskom reports its fruitless and wasteful expenditure — in its annual financial reports.
It added that the action is not unprecedented as Transnet has had a similar exemption.
“Irregular and fruitless expenditure can be anything including changing your flights and there are cost implications. The national treasury regulations are also not well designed for SOEs [state-owned entities] and agencies, most of them incur wasteful and fruitless expenditure during their normal activities. National treasury will release an explanatory note shortly and hopefully make DDG [deputy director general] overseeing Eskom available for interview,” it said.
Criticism
In a statement, Economic Freedom Fighters (EFF) condemned the minister’s decision, saying that Eskom has a history of corruption.
The EFF, in its statement, cited the eNCA interview with former chief executive Andre de Ruyter, in which he said senior ANC members of the executive were involved in criminal cartels that have stolen from Eskom.
“A decision to exempt an institution that is mired in corruption is therefore irrational and
irresponsible because such a move will deepen and worsen the levels of corruption
that defines Eskom,” the EFF said, adding that the decision undermines “the pillars of transparency and accountability that our democracy is built upon”.
Energy expert Chris Yelland in a Twitter comment questioned whether the decision was the way to deal with “an electricity disaster in South Africa”.
He later tweeted that Eskom had confirmed the decision “and has indicated that wasteful and irregular expenditure will still be reported in the Eskom Integrated Report but not in the Eskom Annual Financial Statements [reports] for the next three years”.
Western Cape Premier Alan Winde said he wondered whether there was a motive behind the exemption, adding that it would prove to be a major setback in dealing with the corruption in the utility.
The Organisation Undoing Tax Abuse (Outa) said the exemption decision was concerning, given the corruption involving Eskom. “But what does the finance minister do? Exempt them from declaring fruitless and irregular expenditure under PFMA for the next three years.”
Outa added that Eskom should be fully transparent when it comes to spending and procurement.
The utility’s previous financial statements showed that in the year to end-March 2020 Eskom recorded irregular expenditure of R11.2 billion (mostly because of modifications of contracts), fruitless and wasteful expenditure of R2.3 billion and losses of R2.2 billion as a result of crime.
The utility at the time said the losses were caused by criminal conduct related to non-technical energy losses, including electricity theft. There were also incidents of fraud and theft of equipment such as cables.
“Fruitless and wasteful expenditure included an amount of R840 million that was incurred on the construction of residential flats to accommodate artisans working at Kusile project as the building could not be used for the intended purpose,” Eskom reported in 2020.
The exemption details
In the special government gazette issued by the finance minister on Friday, Godongwana provided Eskom with an exemption from section 55 (2) (b) (i) of the Public Finance Management Act (PFMA) for 2022-23 and the following two years.
Eskom would still be required to disclose all information required by International Financial Reporting Standards and general debt listing requirements.
The gazette explains that the applicable section of the Act requires that state entities “provide particulars in their annual financial statements and annual reports of any material losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the financial year”.
“In granting the exemption, Godongwana will also set conditions, which will be laid out in a letter to Makwana. The conditions will include: all irregular, fruitless, and wasteful expenditure must still be detailed in the Eskom annual report; irregular expenditure that occurs through criminal activity or losses must still be disclosed in the financial statements and the annual report,” treasury said.
Eskom’s interim results for the 2022-23 financial year for the six months to end-September, Eskom noted that the treasury had issued an instruction limiting the disclosure of irregular expenditure and fruitless and wasteful expenditure.
But Eskom said all information required under the PFMA that was previously disclosed in the financial statements would be included in its integrated report.
“Eskom knows it faces various challenges that resulted from mismanagement and corruption that could have an influence on stakeholder sentiment.”
Although progress had been made in cleaning up irregularities, improving processes and strengthening controls, it would take time to “identify all issues and take appropriate corrective action and implement consequence management”, according to the interim results report.
Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa.