Treasury confirms U-turn on reporting of Eskom irregular spending

The National Treasury has backtracked on exempting Eskom from reporting irregular and wasteful spending in its financial statements, a move that would have enabled the utility to avoid reporting fast-tracked emergency procurement when dealing with breakdowns

An exemption would also have enabled Eskom to avoid a qualified audit because of a “technical irregularity” that could make it difficult for it to raise funds. This follows an earlier “temporary” reversal of the same decision, gazetted in a notice by finance minister Enoch Godongwana on March 31, granting Eskom exemption from certain sections of the Public Finance Management Act for three years.

The government was forced to withdraw the exemption on April 6 “to allow for a period of further engagement and written technical input from all relevant stakeholders on the matter” after an outcry that it could serve to conceal the corruption that has become rife at Eskom.

Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage said at the time that given public knowledge of many cases of fraud, corruption and sabotage at Eskom, and in the context of general elections in 2024 and the electricity crisis, the Treasury decision would widen the trust deficit between the public and the government.

Godongwana explained in parliament at the time that the Treasury’s intention with the exemption was to allow Eskom “to have better financial statements, and create an environment where there remains transparency on corruption and irregular expenditure”.

The exemption would still have required Eskom to disclose all irregular and fruitless expenditure in its annual report, and would have been subject to audit, but separately from the financial statements.

In a final decision published on Wednesday, the Treasury said it recognised the commitment of Eskom’s board and management to fight and expose fraud and corruption, and the additional compliance and reporting burden facing Eskom and other state-owned entities.

But, as Eskom attempted to recover from the devastating effects of state capture and take steps against past and current corruption, it needed to ensure that its anti-corruption strategy was credible, the Treasury said. “It is the view of the minister that Eskom needs to do more operationally to reduce the scope of fraud and corruption before such exemption can be considered, and for it to be effective.”

Public anger

Responding to the latest decision, Duvenhage said the Treasury’s about-turn showed “an awareness of public anger over the attempts to exempt Eskom and the value of consulting the public. We hope the minister will find a more transparent and effective mechanism for state-owned entities to address historical misspending”.

Godongwana had granted the exemption after a request by Eskom chair Mpho Makwana to assist Eskom in dealing with the risk that such disclosures could result in a qualified audit opinion. Eskom also submitted that the exemption would “assist in the dialogue with credit ratings agencies, the lender community and key stakeholders”.

The Treasury received 56 comments from individuals, organisations and political parties on the proposed exemption for Eskom. These included written submissions from Outa, the Freedom Front Plus, DA, the Western Cape provincial government, Solidarity, Cosatu and the Black Business Council.

The Treasury previously said that a risk of having non-material, non-corrupt transactions reported in the annual financial statements included a higher likelihood of qualified audit opinions that triggered loan covenants, which were likely to further increase Eskom’s cost of borrowing.

In the statement issued on Wednesday the Treasury said it remained of the view that state-owned entities were “facing legitimate technical challenges regarding compliance reporting”. It said there was a need to “differentiate between corrupt and suspicious transactions and expenditure made in good faith but not necessarily complying with the plethora of financial and non-financial laws and rules”.

erasmusd@businesslive.co.za