Eskom committed to addressing wasteful expenditure

Tuesday, April 4, 2023

Eskom Acting Group CEO, Calib Cassim, says the power utility is committed to addressing irregular, fruitless and wasteful expenditure.

This after the power utility was granted partial exemption by National Treasury from the Public Finance Management Act (PFMA) and other Treasury regulations for a period of three years.

The move means the power utility will only disclose irregular, fruitless and wasteful expenditure on its annual report and not annual financial statements.

Cassim assured the nation that the exemption comes under strict monitoring.

“PFMA 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 to the conditions and strict monitoring requirements imposed by National Treasury in granting the exemption,” Cassim said.

Eskom’s Chief Procurement Officer, Jainthree Sankar, said regular procurement processes will continue to be followed.

“Eskom continues to work with the various regulatory bodies to support delivery on the procurement of goods and services impacting our key operations. Furthermore, Eskom is committed to a procurement system that is fair, equitable, transparent, competitive and cost-effective. Any exemption or departures are seen as an exception, not a norm,” Sankar said.

Financial reporting to continue

In a statement, National Treasury explained that having irregular, fruitless and wasteful expenditure on annual financial statements may put further pressure on the public purse.

“A major risk of having non-material, non-corrupt transactions reported in the annual financial statements include a higher likelihood of qualified audit opinion… that triggers loan covenants, which will likely further increase Eskom’s cost of borrowing and may result in additional fiscal pressure from Eskom’s debt burden should the entity be unable to negotiate lender waivers for these covenants.

“The exemption granted to Eskom will enable it to continue to fund its balance sheet and still maintain accountability, transparency and reporting requirements in its annual reports and annual financial statements. If the exemptions were not considered, it would place pressure on the fiscus and limit borrowing powers of the SOE,” the statement read.

National Treasury assured that Eskom is still bound to other strict financial reporting requirements including those of the International Financial Accounting Standards (IFRS), the JSE Debt Listing Requirements and reporting obligations to parliament and oversight structures that arose as a result of Eskom’s debt relief arrangement.

“In addition… the National Treasury’s Office of the Accountant-General (OAG) which sets the accounting standards in government, also engages with the Auditor-General, to ensure that any information on irregular and fruitless and wasteful expenditure not published in the financial statements is still reviewed, but not as part of the financial statements.

“As indicated, the National Treasury remains committed to publish further terms of conditions of the loan under the Eskom debt relief arrangement, which is currently still being finalised and will also publish a more detailed explanatory note to outline the process of reporting on irregular and fruitless and wasteful expenditure and its approach to PFMA disclosure requirements as they apply to SOEs, and to do so in a way that protects the fiscus,” the statement read.

Treasury emphasised that the partial exemption does not grant the power utility any immunity from implementing checks and balances that prevent irregular, fruitless and wasteful expenditure.

“By allowing Eskom to report on irregular and fruitless and wasteful expenditure in its annual report and not in its financial statements, 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.

“Furthermore, it is not exempt 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,” the statement read. –