Eskom has been excused from reporting irregular and wasteful spending in its accounts

Under a special government proclamation published on Friday by Minister of Finance Enoch Godongwana, Eskom was excused from declaring irregular and unproductive expenditure in its yearly financial statements.

The gazette, which was released on the final day of the fiscal year, exempts Eskom from Section 55 (2) (b) I of the Public Financial Management Act (PFMA) for 2022/23 and the two years after.

The pertinent section of the Act compels state entities to disclose “any material losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the financial year.” in their annual financial statements and annual reports.

As addition, the notice exempts Eskom from a Treasury rule dealing with the same need.

Treasury said on Sunday that the gazette was published in response to a letter from Eskom chairman Mpho Makwana. Eskom will still be obligated to publish all relevant IFRS and general debt listing information. Godongwana would also impose restrictions in his letter to Makwana in exchange for the exemption. The following criteria will apply:

• All irregular, fruitless, and wasteful expenditure must still be detailed in the Eskom annual report;
• Irregular expenditure that occurs through criminal activity or losses must still be disclosed in the financial statements and the annual report

While the measure has sparked scepticism and controversy, with the EFF criticising it, the Treasury said it will release a technical explanation shortly to clarify the logic for it, which was not an attempt to avoid openness but came from technical accounting challenges brought about by the PFMA.

Accounting does not use the phrases “irregular” “wasteful” or “fruitless” expenditure. While some irregular expenditure is the result of corruption, others are the result of accounting rule violations. Nonetheless, because they are fundamental elements in the PFMA, the auditor-general considers them grounds for qualification of audit findings. Qualified audit results, in turn, put debt covenants between lenders and state-owned enterprises at jeopardy.

The exemption comes at a time when both the Eskom board and the Treasury are working to improve Eskom’s balance sheet through debt reduction. This will allow Eskom to borrow again in order to invest, especially in new transmission infrastructure.