POWER CRISIS ANALYSIS
Our Lady of Perpetual Exemption: Eskom’s latest saga alarms already bruised South Africa
Eskom’s exemption from reporting irregular, wasteful and fruitless expenditure and criminal conduct losses set off alarms, amid persistent scepticism over government pledges on ending rolling blackouts. Badly timed, it followed the electricity minister’s PR tour of power stations — and the further deterioration of a bleak electricity outlook.
Eskom is exempted from reporting irregular, wasteful and fruitless expenditure, and losses from criminal conduct, until 31 March 2025, according to Finance Minister Enoch Godongwana’s Government Gazette notice dated 31 March 2023.
It was the response to Eskom board chairperson Mpho Makwana’s request in a letter dated 9 March which shows awareness of the impact on auditing and financial accountability of the troubled power utility whose R400-billion debt is SA’s biggest risk.
“Those particulars will no longer be subject to a full statutory audit by the Auditor-General South Africa. As such, the threat of a qualified audit for reasons relating to PFMA [Public Finance Management Act] non-compliance will be alleviated. This will provide relief to Eskom in circumstances where its financial position is constrained and the cost of borrowing is a major concern in its financial recovery efforts.”
Irregular, wasteful and fruitless expenditure is incurred by non-compliance with rules and regulations on procurement and spending, and penalties are incurred for such. These categories provide important insights into institutional health, and the Auditor-General considers these in making audit findings.
But that’s changing, as the National Treasury on Monday evening said Eskom’s exemption was a new approach as it and the Auditor-General were reviewing changes to “focus on identifying corrupt or suspicious expenditure, or expenditure made in bad faith” in light of the State Capture commission recommendations.
Public outcry
The National Treasury on Monday evening released the correspondence between Makwana and Godongwana, alongside an explanatory note after Monday’s gathering public outcry. The decision had been described as irrational, stalling accountability and encouraging corruption or at least malfeasance.
“This new approach to reporting on irregular and fruitless and wasteful expenditure is in line with the response of President [Cyril] Ramaphosa to State Capture and corruption,” said the National Treasury statement.
Eskom would still report on irregular and fruitless and wasteful expenditure — just not in its financial statements, but in the annual report.
In this way, “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.”
On Monday evening, the power utility welcomed its exemption in a statement that said it would continue “to respect and cooperate with supervisory authorities”, including the public enterprises minister, National Treasury, Auditor-General and Parliament.
Eskom, which in past years has struggled to timeously submit its annual reports and audited financials, is battling to get its balance sheet in order even amid the R254-billion debt relief announced in the February Budget. Without resolving the balance sheet issues, the unbundling is stalling, as debtors must agree to the establishment of separate entities such as transmission.
“Eskom continues to face various challenges that resulted from mismanagement and corruption that could have an influence on stakeholder sentiment,” said the Eskom integrated results report, released days before the exemption was published.
Read more in Daily Maverick: Eskom reality check: it will NOT get better any time soon, regardless of SA’s WEF sales pitch/PR
But unlike the exemption of transport and logistics entity Transnet, Eskom’s did not pass quietly — not when rolling blackouts leave South African households and businesses without electricity for up to 10 hours a day, with daily scheduled power cuts of at least Stage 2 set to continue to March 2024. This outlook shows a significant deterioration compared with even January 2023 — and confirms that despite the political hype, South Africa’s electricity supply remains in a deep-seated polycrisis of politicking, technical and financial malfeasance and corruption.
Curious and concerning
Against this backdrop, Eskom’s exemption from reporting irregular, wasteful and fruitless expenditure and losses from criminal conduct didn’t land well. The Black Business Council said it was “irrational”; the DA and EFF said the move was curious and concerning.
“It is unacceptable to hide material financial information from auditors in the hope of obtaining a better audit outcome… The likely reason for this exemption is that Eskom needs more money from investors to fund its operation even if a large portion of its debt is transferred on to the national balance sheet,” DA MP and finance spokesperson Dion George said in a statement, highlighting Eskom’s irregular expenditure stood at R67.1-billion as of March 2022.
The EFF statement earlier said: “A decision to exempt an institution that is mired in corruption is therefore irrational and irresponsible because such a move will deepen and worsen the levels of corruption that define Eskom.”
Outa (Organisation Undoing Tax Abuse) CEO Wayne Duvenage said it “sends a clear message that government is not serious about transparency and accountability when it comes to Eskom’s financial management practices”.
It’s not necessarily misplaced concern, regardless of the National Treasury’s insistence on a new approach to financial reporting.
A year after getting its exemption from PFMA reporting obligations, struggling transport and logistics entity Transnet seemed to almost pass over these details in its 2022 integrated report. It simply reflects a slashing of irregular expenditure from R3.86-billion in 2021 to R1.14-billion in 2022 — one disciplinary process led to “training” — while wasteful and fruitless expenditure is put at R58-million and material losses through criminal conduct and theft at R4-million.
Whatever technicist view is officially taken, the rolling power outages come in a deeply socioeconomic and political context. The governing ANC is predicted to lose significant support in the 2024 elections.
In his February State of the Nation Address (Sona), President Cyril Ramaphosa proclaimed ending load shedding as the top priority of his administration — with a new electricity minister appointed in his Presidency to implement the National Energy Plan presidentially announced in July 2022.
Electricity Minister Kgosientsho Ramokgopa hit the power station trail to press flesh, boost morale and declare that ending rotational power cuts could be achieved by not shutting down ageing plants, and getting better energy availability factor (EAF).
Read more in Daily Maverick: Electricity minister Kgosientsho Ramokgopa to push for extending life of ageing coal-fired power station
His claim that it wasn’t corruption, but simply technical issues that underlay South Africa’s electricity crisis, was quickly and sharply contradicted by the National Union of Mineworkers (NUM), analysts, political opposition and others.
Corruption at Eskom was plain to see not only in the intelligence-driven probe ex-CEO André de Ruyter initiated but also in a series of complaints laid with the SAPS, arrests and a handful of court proceedings.
Introducing the four crime cartels that have brought Eskom and South Africa to their knees
Crucially, Ramokgopa’s commentary, particularly around the electricity availability factor (EAF) and boosting Eskom staff morale, echo those of Eskom board chairperson Makwana.
In January he had told Parliament’s public spending watchdog, the Standing Committee on Public Accounts (Scopa), that it was important not to hammer home the negative about Eskom in the interest of workers’ morale. Focusing on EAF improvements, Makwana, pressed by MPs, insisted March 2025 was the date.
But elsewhere in the Eskom saga that has been a moving date, with Mineral Resources Minister Gwede Mantashe saying the rolling power outages could be sorted within six to 12 months.
All this underscores the sticky politicking around South Africa’s electricity crisis, the impact of which has also brought down economic growth forecasts to 0.1% according to the International Monetary Fund, or 0.9% on the National Treasury’s predictions.
That the exemption was made under the PFMA, not the State of Disaster, is a political factor in itself — and plays into the widespread public belief that most, if not all, measures already existed in law and regulation to address the rolling power cuts.
At the sharp edge of all this is the government’s credibility. DM
The content of this article is professionally written but the title is in very poor taste.
Agreed. Our Master of Perpetual Scapegoats – might have caused less offence. But first-class reasoning and detailed content Marianne. Thank you.
Taking into account the caricatures of our Lady of the Legal Fraternity, the entire situation does leave a bad taste….
That of South Africans again taking it like a ………. (sorry no offence to men but …),
That of South Africans Tax monies being abused,
That of South Africans being fleeced,
That of our rights to effective Governance being eroded again…..
Wake up all South Africans, vote not with you heart but with cognisance that politicians are just like us and will seldom fulfil
their promises!!!!
The legal and technical aspects of this are way above my pay grade, but having listened to Edward Kieswetter on 702 yesterday, it sounded very much like any half-alert crook at Eskom is rubbing his hands with glee: it appears to give them scope for saying “I didn’t know the company that was charging us R1 million for a paperclip that they assured us was the solution to our boilers breaking down was fraudulent and owned by my wife.”
There is such a trust deficit at Eskom and the government, every single purchase should be placed in the public domain, along with the tax compliance certificate of the company, the beneficial ownership, prior experience in delivering the products or services, and the losing bids to ensure that we get bang for our buck, not bang goes the substation.
And I thought it was an April fools joke, Sadly it’s true. Beggars belief.
They do not believe they are doing anything wrong and that is the fundamental problem.
They know they are doing almost everything wrong, but believe that if they are not forced to report then they can fool the rest of us into believing that all the wrong things have stopped.
They know exactly what they are doing. Our govt is a mafia, the people of SA need to realise this.
formal approval to carry on corruption!
The exemption is an indication that the PFMA is not fit for purpose. It imposes onerous conditions on SoE’s , making it difficult to operate, and doesn’t stop corruption without the required political will. Many of the irregularities are not material and unfortunately linger forever like a bad smell. They are not cost-effective to resolve, and distract from the important issues like service delivery. This is a worldwide problem, we are not unique, but we also lack the political will to address it. The person who can sort this out with a fit-for-purpose system should be eligible for a Nobel prize.
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…
Any “prominent men or women who are beyond reproach” would be hounded out as De Ruyter was, assuming they avoided drinking coffee.
Given that the bauxite needed for the production of aluminium is not mined in SA but shipped from South America, offloaded in Richards Bay, processed by adding in huge quantum’s of electricity and then reshipped to China, here would be my questions given the announcement of continuous loadshedding until 2025.
What percentage of Eskom’s total electricity production is consumed by the aluminium smelters?
How many people do these smelters employ?
At what price do we export the processed bauxite compared the price at which we import refined aluminium from China?
What price do the aluminium smelters pay for electricity?
Because my understanding is that these smelters together consume the same electricity as consumed by the whole of Gauteng, they pay a tenth of the price for electricity, employ just a handful of people and provide hugely subsidised processed bauxite to the Chinese for manufacturing. And that if we told the Chinese to process the bauxite themselves, we would not have another day of loadshedding.
Is there anyone out there who can answer or confirm my questions?
Closely guarded secret but, yes, we add hugely expensive electricity to imported bauxite to nky export the alumuminium. If we had massive hydro schemes producing huge surplus electricity that would be great but, of course, we are burning coal to produce the dirtiest aluminum in the world. Crazy but true.
How many more “Free Passes” must Eskom be given to paper over its cracks? Kusile Units 1-3 now out of service and to be exempted from emission limits after gross mal- operation, a Medupi generator destroyed by explosion 9 days after hand-over due to incompetence and could have been returned to service by now by transferring a Kusile machine-total of about
3 200 Mw unnecessarily off-line. The Majuba Rail Project held to ransom by the coal trucking mafias. The list goes on and no-one held accountable. “Minister of Electricity” a sap. Rather admit and face up to the real challenges than try to conceal what everyone knows!
What about the morale of ordinary SA citizens? #Gatvol
Shut up serf! As part of the lumpenproletariat you have no right to complain! Just suck it up – remember our Ministers have ***STRUGGLE CREDENTIALS*** which means they’re beyond questioning. Except the ones whose struggle credentials are that they struggle to understand how a modern, successful society is supposed to operate and that they’re elected to serve South Africa, not plunder and ruin it. Minor details, though, when you’re in Moscow with a begging bowl for next year’s elections.
Hi DeeBee,
Whilst I have accepted your comment as a total tease, there is some serious validity to your conjecture:
– the SA government relies on Cadre Deployment,
– as such qualifications are put subject to party politic compliance.
– this requires a total blind eye to possible illegal proclivities.
If the Governing Party could sort this out
– we could be a prosperous Nation,
– ensure employment and education,
– reduce reliance on grants,
– reduce corruption and accusations of malfeasance.
We could be a HAPPY COUNTRY!!!!
So much for our Electricity minister stating last week that “Eskom isn’t in trouble because of corruption”. And what will this do for our investment ratings?
So, the government hides more information about Eskom.!!! Surprise!!!!! Surprise!!!
The new electricity minister is fed lies and believes them.
I think, that with the government stance on Eskom, Eskom will last for less than 5 years. It will then collapse, thousands of jobs lost, billions down the drain and solar and wind power will take over. And who will own those companies?? No prizes for guessing – ANC ministers *#*#@ @%.
And what’s this about de Ruyter giving evidence in parliament? I hope it is televised.
As a novice in this field I have been able to grasp the salient points. The fact that even De Ruyter mentioned the red tape as too restrictive at Escom does indicate that change and adjustment is not only required but would clear some of the obstacles they faced. Obviously what works when everything goes well often needs adjustment in a crises. But I do not trust the entegrity of our leaders or their agenda behind every strategic move they make that removes processes of accountability. It is not time the Auditor General is given powers of prosecution?
Not sure I would want to be Eskom’s auditors, they still have to issue an audit opinion and I am sure still have an obligation to report ‘Reportable Irregularities.’
The skilled workers of ZA are looking at this and asking themselves, why they are still here.
So this is how it is going to be – we will stop sabotaging the power stations, and in exchange you will stop looking into our “expenditures”. DD
Election politics. Anything goes to bamboozle the voters.
Being exempt from a full statutory audit but having to mention the irregular & fruitless expenses in the annual report will result in the audit report proudly reporting that Eskom had generated an income (for example) R10 billion for the year which had cost them R14 billion.
And not to worry – this is how problems in SA are fixed. Don`t worry about fixing the problem – more money will be pumped in to make the problem worse so that next year we can pump in more money. Lekkerrr!!
Having now been disabused of the idea it was really an April Fools joke, just when you think this ghastly government cannot take us lower – here we are! That they even believe investors and lenders will be fooled by this just tells you how inept the entire ANC governing structure is. It is all in plain sight for all to see. Talk about making a mockery of peoples sensibilities. This takes it to another level. Heaven help us!
I simply cannot GUFFAW loudly enough! Really? This sham is going to do wonders for South Africa on the international, financial stage. Great for investment ratings! Now, we can live in Never-Never Land. A new remarkable strategy. Keep it off the books. That way it never happened. It’s not enough that South Africa consorts with criminal nations. We’re following their playbook. (BTW, Russia’s once-vaunted military is a carbon copy of any SA SOE. Corruption kills!)