Treasury doubles down on ‘nonsensical’ Eskom exemption

 ·9 Apr 2023

The National Treasury says that it still intends to reinstate the exemption it granted the national power utility Eskom from disclosing irregular, fruitless and wasteful expenditures.

Ismail Mononiat, the director-general of the Treasury, told Business Times that the exemption has merely been shelved temporarily to address concerns raised by the Auditor-General (AG) and will still undertake the process of public consultation.

On 31 March, the National Treasury exempted Eskom from section 55(2)(b)(i) of the Public Finance Management Act (PFMA) and Treasury Regulation 28.2.1 for three years.

However, mass public outcry from civil society organisations, political parties and labour unions saw finance minsiter Enoch Godognwana being forced to withdraw the exemption.

The exemption ultimately meant that irregular, fruitless and wasteful expenses would be reported in Eskom’s Annual Report as opposed to its Annual Financial Statements.

According to the Treasury, the move was done to protect Eskom’s credit rating and audit opinion that, if faltered, could have severe knock-on effects on the company’s already dire financials and loans.

South Africans at large, however, saw it as a move to shield Eskom from being held accountable, dismantle its financial transparency and enable further corruption at the most important company in the country right now.

Calls for the waiver to be lifted came despite Eskom itself promising that it would not abuse the exemption and remain committed to complying with the PFMA.

Eskom has not experienced a clean history when it comes to corruption, and currently, all eyes are on the entity following an explosive interview with the former CEO Andre De Ruyter, where he said that corruption was entrenched in the company and political influence was running rampant.

Mononiat said that although the Treasury acknowledged the public’s desire for strong measures against corruption, they will likely grant the exemption again following discussions with the Auditor General and Deloitte, who audit Eskom, reported Business Times.

“We are just withdrawing the exemption, for now, to allow us to engage further with the concerns that have come to us and to engage with the AG and auditors of Eskom. Then we will finalise (our) position,” said the director-general.

The publication further reported that a major international banker with experience in government bond markets expressed confusion over how the Treasury thinks that rating agencies are gullible enough to interpret the waiver of reporting irregularities as credit neutral.

“It’s quite the opposite. The agencies will inevitably discount into their Eskom rating irregular and wasteful expenditure, as well as factor in — as the waiver implies — poor governance, which is net credit negative. The waiver makes no sense; the rating agencies will see right through it,” said the banker.

A handful of other economists and analysts have noted that ensuring the credit rating of Eskom would be good for all state-owned entities.

If Eskom was to go into a possible credit default, then it could trigger further defaults across the board for companies like Transnet – the national logistics company, said Nedbank economist Isaac Mathsego.

Read: The Reserve Bank’s new plan to secure bank accounts in South Africa

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