Business Maverick

ACCOUNTABILITY BLACKOUT

Critics react to Godongwana’s move to shield Eskom from declaring irregular spending

Critics react to Godongwana’s move to shield Eskom from declaring irregular spending
A dilapidated sign outside the Eskom Acacia electrical substation in Cape Town, South Africa, on 2 August, 2022. (Photo: Dwayne Senior / Bloomberg via Getty Images)

Civic and business groups have sharply criticised the decision to exempt the SOE from some provisions of the Public Finance Management Act. The National Treasury has defended the decision by Finance Minister Enoch Godongwana.

Eskom has become the second state-owned enterprise (SOE) to be granted an exemption by finance minister Enoch Godongwana from disclosing and reporting irregular and fruitless expenditure in its annual financial statements. 

State-owned transport group Transnet was also recently granted a similar exemption from regulations under the Public Finance Management Act (PFMA) that require SOEs to disclose expenditure that does not comply with the provisions of the act.

This time, Eskom was granted an exemption from disclosing irregular and fruitless expenditure for three years as Godongwana signed a special government gazette dated 31 March 2023, the last day of the government’s financial year. 

Irregular and fruitless expenditures are often considered to have been made in vain and could have been avoided if care and duty were exercised. It is expenditure that doesn’t follow the spirit and provisions of the PFMA and can result in adverse audit findings from the Auditor-General’s office. 

The announcement comes amid continuous rolling power blackouts every day so far in 2023. 

The move by Godongwana has sparked outrage across the political and civil society spectrum, with some arguing that the exemption will be used by Eskom’s management and board to hide wrongdoing at the power utility. 

The National Treasury has moved to clarify Godongwana’s decision by saying that Eskom was granted a “partial” and not a full exemption from reporting on irregular and fruitless expenditure.  

The gazette signed by Godongwana provides Eskom with an exemption from Section 55 (2) (b) (i) of the PFMA for 2022/23 and the following two years. This section of the PFMA requires SOEs to report irregular and fruitless expenditure in both their financial statements and annual report. 

Financial statements reflect the income, cash flow, profit or loss reported by a company. Meanwhile, annual reports are wider in scope as they includes a letter from the CEO and board chair about the operational and financial situation of a company as well as the future plans and strategies of the company. In the SOE universe, the financial statements and annual report are usually published separately but at the same time. 

But with the “partial” exemption, Eskom will now be required to report and disclose sullied expenditure mainly in its annual report. 

In a statement issued on Monday, 3 April, the Treasury said Eskom will still be required to report irregular and fruitless expenditure that occurs through criminal activity, such as theft and corruption, in notes accompanying both the financial statements and annual reports. 

“Furthermore, it [Eskom] is not exempt from taking appropriate criminal or disciplinary steps because of any losses incurred to date. All material losses through criminal conduct and any losses recovered or written off from irregular expenditure will still need to be reported in the annual financial statements,” the Treasury said. 

This, the Treasury said, will ensure that “reporting transparency and accountability is not compromised and still made public as currently required.”

While other instances of irregular and fruitless expenditure not linked to corruption, such as contraventions of day-to-day and ordinary accounting rules, need only be disclosed in the annual report.

Track the days of power outages since 2015 to date, here.

In March 2022, Transnet was given a similar three-year exemption from the PFMA by Godongwana so that it does not need to include irregular expenditure in its financial statements and annual report going forward. 

Transnet CEO Portia Derby has argued that granting such exemptions would help the SOE be on a level playing field with private sector companies, which are not subjected to the PFMA. 

She said the act was also cumbersome as SOEs are required to continuously include previously identified irregular and fruitless and wasteful expenditure in latest financial statements even if corrective and remedial actions are taken by SOEs. Derby said the PFMA also tended to cause confusion among international investors, especially the accounting treatment of financial statements.

Transnet relies on the international investment community, which provides it with funding for its operations. 

In Eskom’s case, the Treasury said publishing irregular and fruitless expenditure in the annual financial statements and annual report could result in adverse audit findings from the Auditor-General’s office, known as a qualified audit opinion. This audit opinion means that there is uncertainty in a company’s financial statements as they contain misstatements. 

Godongwana and Eskom board chair Mpho Makwana are concerned that reporting irregular and fruitless expenditure in the financial statement and annual report raises the probability of the power utility receiving an a qualified audit opinion from the Auditor-General’s office. This would make Eskom lenders nervous about the power utility’s ability to pay back the R423-billion debt on its financial books. Credit rating agencies might also be spooked and take a negative view on Eskom, and lenders would see the power utility as being at risk on defaulting on its debt repayments. This would increase Eskom’s borrowing costs especially when the power utility plans to raise more or new money from lenders to fund its operations. 

“The exemption granted to Eskom will enable it to continue to fund its balance sheet and still maintain accountability, transparency and reporting requirements in its annual reports and annual financial statements. If the exemptions were not considered, it would place pressure on the fiscus and limit borrowing powers of the SOE.”

In the SOE universe, Eskom and Transnet are big transgressors regarding irregular and fruitless and wasteful expenditure under the PFMA. 

According to Eskom’s 2022 annual report, the power utility’s irregular expenditure amounted to R67.1-billion, the vast majority of which relates to the previous years. Fruitless and wasteful expenditure amounted to R5-billion at year-end.

In Transnet’s case, the company disclosed transgressions of the PFMA that were worth R105-billion during the year ending March 2022, which included R104.3-billion of irregular expenditure, and R728-million of fruitless and wasteful expenditure. These were not new transgressions and also relate to previous years.  Some of these sullied expenditures and losses recorded by Eskom and Transnet are a direct result of criminal conduct or the modification of contracts. 

SOEs were targeted during the State Capture years, as the corruption that occurred at such entities and the money that was stolen were often classified under irregular and fruitless expenditure. The Zondo Commission of Inquiry heard evidence from investigator Paul Holden that an estimated R500-billion was lost through State Capture corruption and sullied contracts, some of which were granted by SOEs, including Eskom and Transnet. 

Read in Daily Maverick: The total(ish) cost of the Guptas’ State Capture: R49,157,323,233.68

Industry players are deeply suspicious of Godongwana’s decision to exempt Eskom from some provisions of the PFMA. Civil society group Organisation Undoing Tax Abuse (Outa) said the move by Godongwana removes transparency around the financial affairs of the power utility. Without such the transparency that is envisaged by the PFMA, it would potentially create fertile ground for corruption to fester again at Eskom, Outa said in a Tweet on Monday, 3 April. 

The Black Business Council (BBC) has also expressed outrage over the “irrational” decision by the Treasury, saying it will seek an urgent meeting with Godongwana and deputy president Paul Mashatile “to sharply raise this serious anomaly”.

“The BBC views this as an irrational decision that desperately seeks to shield the incompetent former CEO of Eskom, Mr André Marinus de Ruyter, from his lack of compliance with the PFMA. This makes a mockery of our beloved country,” the BBC said in a statement on Monday. 

Meanwhile, the EFF has slammed the Finance Minister’s decision to exempt Eskom from disclosing irregular and fruitless expenditure in its financial statements. Calling the decision “irrational” and “irresponsible”, the red berets said the move would seek to deepen corruption at the parastatal

“We are appalled by this desperate and sickening attempt by the governing party, the ANC to hide the rampant corruption at Eskom that has plunged our country into avoidable electricity blackouts. The Minister of Finance and the National Treasury are now operating like a mafia, casting a dark shadow over our democracy and the transparency it requires,” the party said in a statement on Sunday. 

Western Cape Premier Alan Winde on Monday, also expressed concern over the decision. He questioned the motive behind the exemption: 

“It seems that rather than stopping corruption, it is being formalised at Eskom. This is not moving us away from greylisting. This is making Eskom blackouts, financial blackouts too.”

Winde said he was considering and pursuing “all options to stop this exemption.” BM/DM

This article was amended to include the National Treasury’s comments.

This article was amended again on April 4, at 1.55pm, to reflect accurately, among others, that the irregular and fruitless expenditure of Transnet and Eskom relates to previous years.

Gallery

Comments - Please in order to comment.

  • Johan Buys says:

    Not clear : will Eskom and Transnet include the issues in their integrated report but no longer in their AFS?

  • Karel Vlok says:

    Without getting rid of these pesky constraints, how can the 2024 election be bought?

  • Rory Macnamara says:

    Words just cannot express ones feelings about this situation other than disgusting!

  • Rob Wilson says:

    Remember ‘rolling mass action’. Here comes ‘rolling sweep under the carpet’.

  • David Edwards says:

    Not sure who is surprised by this – why would the people benefiting from irregular expenditure want any reporting, transparency and/or accountability?

  • Patrick O'Shea says:

    Well I guess the electorate are really getting what they asked for now, to be kept in the dark (both literally and figuratively) and get ripped off at the same time.

  • jcdville stormers says:

    Thiefdom rules for the world’s worst goverment

  • Carsten Rasch says:

    These guys must think the people are as dof as their cadres The so-called minister of electricity first claims there is no visible corruption at Eskom (after being in the hotseat for only a week or two); then the ANC’s parliamentary majority denies us an investigation of claims of corruption; and now Godongwana gives them carte blanche in how they account to us. That’s after poisoning and then firing De Ruyter. There’s no end to the arrogance of the “governing” party, and no limit to how far they’ll go in their destruction of our economy and our country. If I wasn’t an old codger I would be considering other, even extreme, options to rid ourselves of this monkey on our back.

  • Andrew W says:

    Dear Portia, private companies are not endlessly funded by tax payers for incompetence, theft and corruption. The playing fields are not meant to be level… It’s taxpayer’s money!

    Not sure which bit of ANC stupidity is worse…. Calling Russia and Old Friend, blocking parliamentary probe into organized crime at Eskom, or making its visibility impossible. You really can’t make this stuff up.

    The lunatics are running the asylum…. At the cost of decent South Africa’s future

  • Craig Gordon Nain says:

    Transparency goes out the window. These ANC leaders need to learn to make their walk match their talk.

  • Katharine Ambrose says:

    I can’t imagine there’s any prospective lender to Eskom who doesn’t know there are serious money issues there. However this ruling seems unnecessary
    and smacks of a cover up. Gogondwana probably just threw away his credibility by signing this.

  • Derek Jones says:

    This looks like a license to steal. This must be challenged in court. This, all in the interests of protecting Eskoms reputation? Both in the recent past and for a few years. I smell a rat. What illegal things have they started to do and will continue to do that they want to keep a secret from the public that they can hide in their annual report?

    • Samantha Vandersteen says:

      Perhaps it’s not the illegal transactions they’re trying to hide so much as the politicians & gang relations that they are trying to camouflage

  • Ian McClure says:

    OMG – speechless .
    Tragic banana republic stuff .

  • Robert Douglas says:

    Maybe Godonswana’s decision should be viewed as favourable for a further shift by the public away from the sullied fingers of the ANC ?

  • Dou Pienaar says:

    Simple, this move is designed to protect the highest level of ANC leaders involved in the Eskom and Transnet fraud and corruption.

  • Gordon Bentley says:

    I reiterate my previous comment: IS NO-ONE LISTENING… !? We the decent, honest people of South Africa – mostly Tax Payers, urgently call on government to form a transparent, equitable and accountable tender/procurement Board, procedure which is beyond reproach. This is the one positive way to will get rid of tender fraud and tender entrepeneurship which apparently is still practiced widely by many Government/large organisations. This is possibly the single largest source of corruption in our country. It is so easy to steal money this way. Let’s insist that Government sets up a national Tender/Procurement Board, immediately, manned by selected proffesional/prominent men and women who are beyond reproach. Then make it law for any tender/procurement procedure beyond a reasonable total figure must be monitored by this Board. If not, the procurement procedure must be declared invalid and a penalty must be imposed on those who do not comply with this law. We can no longer trust any sundry managers or other irresponsible people to put out tender documents and to monitor this important task with care and accountibility. In my profession I have been party to adjudicating many large projects, recommending results to a tender Board or client body and providing good reasons why this is recommended. Let’s stand together and speak with one voice…

  • Lisbeth Scalabrini says:

    Why should State Owned Company be treated differently than private ones? There is something terribly wrong in the way that the state employees are reasoning. The SOEs are not property of the government, they are owned by the citizens of South Africa.

  • Scott Gordon says:

    In Eskom’s case, the Treasury said publishing irregular and fruitless expenditure in the annual financial statements and annual report could result in adverse audit findings from the Auditor-General’s office, known as a qualified audit opinion. This audit opinion means that there is uncertainty in a company’s financial statements as they contain misstatements.
    And I quote 🙂
    Transnet has done little to improve issues .
    Wayne from OUTA raised a great point , just what will the current lenders and ratings companies think about the idea ?
    Our new minister says the problems are not corruption , just what is the problem ?
    A valid question, not just sarcasm .
    Talk and chat here , to what avail ? Escom is in its death throes , plain and simple , a court of law might have ruled it a suicide .
    Stages 2-4 are here for years to come any new projects will take at least 2 years , that’s the private sector , Escom has no plan .
    Koeberg is messed up and they want it to run another 20 years , way overdue already .
    Hmm gosh , what about all those plants that are due to close over the next 5 years , run them longer 🙂 No spare capacity . If correctly built and maintained , would not break down every few weeks .
    Would love to see a spread sheet of units on and off line , including repair times and why ?
    This is not news , the last nail in the coffin ?
    As such am ok jack , off grid soon . The signs were there years ago .
    A 30 % increase over 2 years , take that to the voters

  • Ludovici DIVES says:

    Eskom is as good as dead, maybe another 5 years tops. then there will be nothing left. ANC arranging the “playing field” for the last looting spree.

  • owen steyn says:

    name one non communistic government that uses phrases like “comrade” and worst of all lumpenproleteriat

Please peer review 3 community comments before your comment can be posted

X

This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.


Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.