Finance Minister Enoch Godongwana recently announced that Eskom’s application for a partial exemption from the Public Finance Management Act (PFMA) and National Treasury regulations would be denied. This exemption would have allowed Eskom, the state-owned power utility, to withhold information in its annual financial statements about irregular, fruitless, and wasteful expenditures, as well as material losses from criminal activity.
Godongwana praised Eskom’s board and management for their efforts in combating fraud and corruption, while also recognizing the additional compliance and reporting challenges faced by the power utility and other state-owned enterprises (SOEs). However, the minister emphasized that before considering such an exemption and ensuring its effectiveness, Eskom must take additional operational measures to reduce the occurrence of fraud and corruption.
Godongwana emphasized the importance of a credible anti-corruption strategy for Eskom as it works to recover from the effects of state capture and combat corruption in his statement. He emphasized the importance of garnering support from key stakeholders such as investors, lenders, suppliers, customers, and the general public.
Civil society organizations and analysts, including the Organization Undoing Tax Abuse (Outa), applauded the minister’s decision. Eskom has accepted Godongwana’s decision and confirmed its commitment to continue reporting in accordance with instructions from the National Treasury.
Eskom stated that it has already put in place a number of initiatives to address past and current instances of fraud and corruption. However, due to legacy issues, the auditors are expected to qualify Eskom’s financial statements regarding the completeness of information reported in accordance with Section 55(2)(b)(i) of the PFMA for the period ending March 31, 2023.
Outa CEO Wayne Duvenage praised Godongwana’s decision, saying he appreciated the minister’s adherence to due process and consideration of public input. Duvenage emphasized the importance of transparency and strong governance in the management of taxpayer funds, emphasizing that given the nature of the business and its reliance on public investments, Eskom’s financial reporting should be subjected to intense scrutiny.
Outa had filed an objection with the National Treasury, citing concerns about Eskom’s history of corruption as well as the potential consequences of granting the exemption. According to the organization, such an exemption could foster an environment that encourages further financial misconduct.
Energy analyst Chris Yelland also praised Godongwana’s decision, saying it validated public and civil society concerns. Yelland argued that granting Eskom the exemption would have been misguided and invalid because it would have attempted to change the rules retroactively to address the power utility’s breach of loan covenants and going concern status.
Initially, the exemption was granted on March 31, 2023, citing potential fiscal pressures and limitations on SOE borrowing powers if Eskom was required to disclose irregular and fruitless expenditures in its financial statements. However, the decision drew widespread criticism, prompting Godongwana to announce its withdrawal in order to seek additional engagement and input from relevant stakeholders.
Godongwana stated that the National Treasury had met with the Auditor-General and had taken into account public comments on the proposed exemption. Accounting and reporting, auditing, governance, legal principles, and public interest issues were among the 56 comments received by the ministry.
While irregular expenditure does not always imply fraud or corruption, it is widely regarded as an indicator of financial management within SOEs. He acknowledged SOEs’ compliance reporting challenges, as well as the need to distinguish between corrupt transactions and those made in good faith but not necessarily in accordance with financial and non-financial laws and regulations.
According to Godongwana, the comments from professional bodies and experts will serve as a foundation for future engagement on accounting and compliance reporting challenges, facilitating the development of a better framework for compliance reporting in SOEs. The National Treasury remains committed to upholding the highest standards of financial governance, working with Eskom to strengthen mechanisms for preventing, detecting, and investigating financial irregularities.
Furthermore, the ministry intends to work with relevant stakeholders and authorities to contribute to PFMA reforms that address the complexities of financial reporting in the public sector. This includes, in consultation with the Auditor-General, developing a revised framework for irregular, fruitless, and wasteful expenditure, with implementation expected in 2024 and beyond.
