Energy News

Eskom’s Exemption Sparks Debate: Transparency vs Technical Accounting Issues

Published by
WIlliam Dube
  1. South African power utility Eskom has been granted a temporary exemption from reporting irregular and fruitless expenditures in its annual financial statements for the 2022/23 financial year and the following two years, as per a special government gazette issued by the Finance Minister.
  2. The exemption has drawn suspicion and criticism from various quarters, including the Economic Freedom Fighters (EFF); however, the Treasury plans to issue a technical explanation to clarify that the measure is a result of technical accounting issues, not an attempt to evade transparency.
  3. The exemption comes amidst efforts by the Eskom board and the Treasury to restore the company’s balance sheet through debt relief, allowing Eskom to secure new loans for investment in critical infrastructure such as new transmission projects.

In a recent development, South African state-owned power utility Eskom has been granted a temporary exemption from disclosing irregular and fruitless expenditures in its annual financial statements. The exemption, which was announced in a special government gazette issued by Minister of Finance Enoch Godongwana last Friday, covers the 2022/23 financial year and the subsequent two years.

The gazette, published on the final day of the financial year, provides Eskom with an exemption from Section 55 (2) (b) (i) of the Public Finance Management Act (PFMA). This section of the Act mandates that state entities include particulars in their annual financial statements and annual reports of “any material losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the financial year.”

Furthermore, the gazette exempts Eskom from a Treasury regulation addressing the same requirement. The Treasury issued the gazette in response to a letter from Eskom chairperson Mpho Makwana, clarifying that Eskom must still disclose all information required by International Financial Reporting Standards (IFRS) and general debt listing requirements.

As part of the exemption, Finance Minister Godongwana will set specific conditions, which will be outlined in a letter to Makwana. These conditions will require that:

  1. All irregular, fruitless, and wasteful expenditures must still be detailed in the Eskom annual report;
  2. Irregular expenditures resulting from criminal activity or losses must still be disclosed in the financial statements and the annual report.

While the move has sparked suspicion and backlash, including a statement of condemnation from the Economic Freedom Fighters (EFF), the Treasury has announced that it will soon issue a technical explanation to clarify the reasoning behind the measure. The explanation is expected to emphasize that the exemption is not an attempt to evade transparency but rather stems from technical accounting issues arising from the PFMA.

It is important to note that the terms “irregular”, “wasteful”, and “fruitless” expenditure are not standard accounting terms. Although some irregular expenditures may result from corruption, others may arise from contraventions of accounting rules. However, since these concepts are integral to the PFMA, the auditor-general regards them as grounds for qualifying audit findings, which can in turn threaten debt covenants between lenders and state-owned entities.

This exemption comes at a time when both the Eskom board and the Treasury are working towards revitalizing Eskom’s balance sheet through debt relief measures. By improving its financial health, Eskom will be better positioned to secure new loans for investment, particularly in the development of new transmission infrastructure.

Context

The temporary exemption granted to Eskom from reporting irregular and fruitless expenditures in its financial statements holds significance for the lives of South Africans, as it directly impacts the financial health and stability of the country’s primary power utility. A financially stable Eskom is essential for ensuring a reliable energy supply and enabling investments in critical infrastructure, such as new transmission projects. By addressing the utility’s debt and enabling it to secure new loans, the exemption may contribute to Eskom’s capacity to improve and expand its services, ultimately affecting the daily lives of millions of South Africans who rely on the utility for their energy needs. However, it is crucial to balance this financial stability with transparency and accountability in order to maintain public trust in the utility’s management and operations.

WIlliam Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on william@rateweb.co.za

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Published by
WIlliam Dube

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