Finance Minister Enoch Godongwana
Following backlash after the issue on Friday of a special Government Gazette by Minister of Finance Enoch Godongwana, which revealed that Eskom would be exempt from declaring its irregular, fruitless and wasteful expenditure, Treasury has asserted that transparency and accountability are not compromised with the move.
Godongwana has granted a partial exemption to the ailing power utility from disclosing irregular spending in its annual financial statements, for three years.
However, Eskom is still required to disclose financial and non-financial information on irregular, fruitless and wasteful expenditure in its annual report.
Treasury argues that the new reporting is in line with President Cyril Ramaphosa’s response to deal with State capture and corruption.
“By allowing Eskom to report on irregular and fruitless and wasteful expenditure in its annual report and not in its financial statements, the 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.
“The exemption also gives Eskom additional time to comply with the new reporting requirements on irregular and fruitless and wasteful expenditure. Eskom is not exempted from ensuring that it takes effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure,” Treasury assured.
It explained that a major risk of having non-material, non-corrupt transactions reported in the annual financial statements was the higher likelihood of a qualified audit opinion, which it said other listed companies did not face. This would trigger loan covenants, which could further increase Eskom’s cost of borrowing and may result in additional fiscal pressure from Eskom’s debt burden if it was not able to negotiate lender waivers for these covenants.
Treasury said the exemption would allow Eskom to continue to fund its balance sheet and maintain accountability, transparency and reporting requirements without adding pressure on the fiscus and without limiting borrowing powers.
Eskom welcomed the exemption, which it said it had been seeking from Public Enterprises Minister Pravin Gordhan for several months.
Eskom acting group CEO Calib Cassim said the utility was committed to complying with applicable legislation and that it would cooperate with all relevant authorities.
“PFMA [Public Finance Management Act] compliance remains a priority as Eskom continues to address irregular, fruitless and wasteful expenditure, including appropriate consequence management proceedings. This exemption will assist in the dialogue with credit rating agencies, the lender community and key stakeholders. Eskom will abide by the conditions and strict monitoring requirements imposed by National Treasury in granting the exemption,” said Cassim.
All other institutions are still required to report irregular and wasteful expenditure in annual reports and in annual financial statements, as required by the PFMA.
Treasury stated that Eskom was not exempted from taking effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure, or 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.
Treasury pointed out that Eskom was still bound by the onerous reporting requirements of International Financial Accounting Standards and JSE Debt Listing Requirements.
“In addition, as part of the Eskom debt relief arrangement, the Minister of Finance instituted various additional reporting obligations onto Eskom, which the entity will be required to report regular updates on to Parliament and oversight structures. It should be noted that the actual conditions are not set out in the gazette, but in a letter from the Minister of Finance to the Chairperson of Eskom,” it said.
Eskom chief procurement officer Jainthree Sankar said Eskom would continue to work with the various regulatory bodies to support delivery on the procurement of goods and services impacting key operations.
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