Treasury withdraws Eskom’s irregular and wasteful spending exemption

Finance Minister, Enoch Godongwana says the exemption granted to Eskom allowing it not to disclose irregular and wasteful expenditures in its financial reports will not go ahead “for now”.

Godongwana said the department would withdraw the gazette after consultation with the auditor general (AG) yesterday, 4 April, and the widespread public outcry.

However, the minister alluded to the possibility of the exemption being reintroduced in the future.

He said that the department will have a detailed consultation with the AG, Deloitte’s and Eskom’s auditors to tighten checks and balances for corruption.

On Friday, Treasury published a gazette exempting Eskom from section 55(2)(b)(i) of the PFMA and Treasury Regulation 28.2.1 for a period of three years.

Treasury explained that the exemption was given for several reasons, but primarily to protect the embattled power utility’s credit rating and audit opinion, which would have had a knock-on effect on the power utility’s financials and loans.

“A major risk of having non-material, non-corrupt transactions reported in the annual financial statements include a higher likelihood of qualified audit opinion – which other listed companies do not face – that triggers loan covenants,” Treasury said.

This would have increased Eskom’s cost of borrowing, which may result in further fiscal pressure from Eskom’s debt burden if it was unable to negotiate lender waivers for these covenants.

Despite Eskom promising that it would not abuse wasteful and irregular expenditure exemption and fully comply with the Public Finance Management Act, members of the public and opposition parties raised concerns due to Eskom’s history of corruption.

The groups argued that, given Eskom’s history of financial losses due to corruption, and its proximity to wider state capture, attempting to hide reporting of potentially dirty transactions from public view is unacceptable.

Groups like business interest group Sakeliga were already gearing up to launch legal challenges to the move.

In its most recent financial statements, Eskom recorded over R11 billion in irregular expenditure and over R2 billion in wasteful and fruitless expenditure.

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