Our Lady of Perpetual Exemption: Eskom's latest saga alarms already bruised South Africa

3 Apr 2023

Eskom’s exemption from reporting irregular, wasteful and fruitless expenditure and criminal conduct losses set off alarms, amid persistent scepticism over government pledges on ending rolling blackouts. Badly timed, it followed the electricity minister’s PR tour of power stations — and the further deterioration of a bleak electricity outlook.

Eskom is exempted from reporting irregular, wasteful and fruitless expenditure, and losses from criminal conduct, until 31 March 2025, according to Finance Minister Enoch Godongwana’s Government Gazette notice dated 31 March 2023.

It was the response to Eskom board chairperson Mpho Makwana’s request in a letter dated 9 March which shows awareness of the impact on auditing and financial accountability of the troubled power utility whose R400-billion debt is SA’s biggest risk.

“Those particulars will no longer be subject to a full statutory audit by the Auditor-General South Africa. As such, the threat of a qualified audit for reasons relating to PFMA [Public Finance Management Act] 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.”

Irregular, wasteful and fruitless expenditure is incurred by non-compliance with rules and regulations on procurement and spending, and penalties are incurred for such. These categories provide important insights into institutional health, and the Auditor-General considers these in making audit findings.

But that’s changing, as the National Treasury on Monday evening said Eskom’s exemption was a new approach as it and the Auditor-General were reviewing changes to “focus on identifying corrupt or suspicious expenditure, or expenditure made in bad faith” in light of the State Capture commission recommendations.

Public outcry

The National Treasury on Monday evening released the correspondence between Makwana and Godongwana, alongside an explanatory note after Monday’s gathering public outcry. The decision had been described as irrational, stalling accountability and encouraging corruption or at least malfeasance.

“This new approach to reporting on irregular and fruitless and wasteful expenditure is in line with the response of President [Cyril] Ramaphosa to State Capture and corruption,” said the National Treasury statement.

Eskom would still report on irregular and fruitless and wasteful expenditure — just not in its financial statements, but in the annual report.

In this way, “National Treasury ensures that reporting transparency and accountability is not compromised and still made public as currently required, while mitigating the risks that could arise if these transactions are reported in the annual financial statements.”

On Monday evening, the power utility welcomed its exemption in a statement that said it would continue “to respect and cooperate with supervisory authorities”, including the public enterprises minister, National Treasury, Auditor-General and Parliament.

Eskom, which in past years has struggled to timeously submit its annual reports and audited financials, is battling to get its balance sheet in order even amid the R254-billion debt relief announced in the February Budget. Without resolving the balance sheet issues, the unbundling is stalling, as debtors must agree to the establishment of separate entities such as transmission.

“Eskom continues to face various challenges that resulted from mismanagement and corruption that could have an influence on stakeholder sentiment,” said the Eskom integrated results report, released days before the exemption was published.

Read more in Daily Maverick: Eskom reality check: it will NOT get better any time soon, regardless of SA’s WEF sales pitch/PR

But unlike the exemption of transport and logistics entity Transnet, Eskom’s did not pass quietly — not when rolling blackouts leave South African households and businesses without electricity for up to 10 hours a day, with daily scheduled power cuts of at least Stage 2 set to continue to March 2024. This outlook shows a significant deterioration compared with even January 2023 — and confirms that despite the political hype, South Africa’s electricity supply remains in a deep-seated polycrisis of politicking, technical and financial malfeasance and corruption.

Curious and concerning

Against this backdrop, Eskom’s exemption from reporting irregular, wasteful and fruitless expenditure and losses from criminal conduct didn’t land well. The Black Business Council said it was “irrational”; the DA and EFF said the move was curious and concerning.

“It is unacceptable to hide material financial information from auditors in the hope of obtaining a better audit outcome... The likely reason for this exemption is that Eskom needs more money from investors to fund its operation even if a large portion of its debt is transferred on to the national balance sheet,” DA MP and finance spokesperson Dion George said in a statement, highlighting Eskom’s irregular expenditure stood at R67.1-billion as of March 2022.

The EFF statement earlier said: “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 define Eskom.”

Outa (Organisation Undoing Tax Abuse) CEO Wayne Duvenage said it “sends a clear message that government is not serious about transparency and accountability when it comes to Eskom’s financial management practices”.

It’s not necessarily misplaced concern, regardless of the National Treasury’s insistence on a new approach to financial reporting.

A year after getting its exemption from PFMA reporting obligations, struggling transport and logistics entity Transnet seemed to almost pass over these details in its 2022 integrated report. It simply reflects a slashing of irregular expenditure from R3.86-billion in 2021 to R1.14-billion in 2022 — one disciplinary process led to “training” — while wasteful and fruitless expenditure is put at R58-million and material losses through criminal conduct and theft at R4-million.

Whatever technicist view is officially taken, the rolling power outages come in a deeply socioeconomic and political context. The governing ANC is predicted to lose significant support in the 2024 elections.

In his February State of the Nation Address (Sona), President Cyril Ramaphosa proclaimed ending load shedding as the top priority of his administration — with a new electricity minister appointed in his Presidency to implement the National Energy Plan presidentially announced in July 2022.

Electricity Minister Kgosientsho Ramokgopa hit the power station trail to press flesh, boost morale and declare that ending rotational power cuts could be achieved by not shutting down ageing plants, and getting better energy availability factor (EAF).

Read more in Daily Maverick: Electricity minister Kgosientsho Ramokgopa to push for extending life of ageing coal-fired power station

His claim that it wasn’t corruption, but simply technical issues that underlay South Africa’s electricity crisis, was quickly and sharply contradicted by the National Union of Mineworkers (NUM), analysts, political opposition and others.

Corruption at Eskom was plain to see not only in the intelligence-driven probe ex-CEO André de Ruyter initiated but also in a series of complaints laid with the SAPS, arrests and a handful of court proceedings.

https://www.dailymaverick.co.za/article/2023-02-27-introducing-the-four-crime-cartels-that-have-brought-eskom-and-south-africa-to-their-knees/

Crucially, Ramokgopa’s commentary, particularly around the electricity availability factor (EAF) and boosting Eskom staff morale, echo those of Eskom board chairperson Makwana.

In January he had told Parliament’s public spending watchdog, the Standing Committee on Public Accounts (Scopa), that it was important not to hammer home the negative about Eskom in the interest of workers’ morale. Focusing on EAF improvements, Makwana, pressed by MPs, insisted March 2025 was the date.

But elsewhere in the Eskom saga that has been a moving date, with Mineral Resources Minister Gwede Mantashe saying the rolling power outages could be sorted within six to 12 months.

All this underscores the sticky politicking around South Africa’s electricity crisis, the impact of which has also brought down economic growth forecasts to 0.1% according to the International Monetary Fund, or 0.9% on the National Treasury’s predictions.

That the exemption was made under the PFMA, not the State of Disaster, is a political factor in itself — and plays into the widespread public belief that most, if not all, measures already existed in law and regulation to address the rolling power cuts.

At the sharp edge of all this is the government’s credibility. DM

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South Africa

Public outcry

Curious and concerning