The decision to exempt Eskom from disclosing and reporting irregular and fruitless expenditure will further undermine investor confidence and may also have other long-term consequences.
“Eskom’s books are going to look better than they necessarily are and enable the power supplier to potentially take on further debt,” says Riaan Grobler, financial advisor at Everest Wealth.
“This will possibly also have a long-term effect on other professions such as auditors who have to sign off on financial statements. This is a blow to transparency and good financial practices.”
The fact that this is happening during a state of disaster with regards to the electricity crisis and with the designation of a minister of electricity, is more worrying.
“So it would appear that the government can do what it wants under a state of disaster and this will now result in the minister of electricity looking like a hero as the true figures will not be seen. This while serious allegations of corruption at Eskom seem to fall on deaf ears and the Minister of Electricity downplays corruption at Eskom.”
This can lead to even more irregular, fruitless and wasteful expenditure as there is no accountability.
“Now the necessary questions will not be asked about where that money has gone. This will also further affect investor confidence as it comes shortly after South Africa was greylisted, with the Financial Action Task Force believing that South Africa is doing too little to combat corruption and money laundering, among other things, and the country will now be under increased monitoring.”
Load shedding also continues to cost the country millions of rands daily. “All this makes it more difficult to win investor confidence.”
According to a notice in the Government Gazette of 31 March, Eskom is exempted from disclosing any irregular, fruitless and wasteful expenditure in its financial results for the financial year to the end of March 2023 and the following two financial years.
On Friday, Eskom announced its interim results for the six months to the end of September. The power supplier expects a loss of R32.4 billion for the financial year ending 31 March.
Regarding the instruction from the Treasury, Eskom says it will now include all information required under the Public Finance Management Act, that was previously disclosed in its financial results, in its integrated report.
In the report on its half-year figures, Eskom admits that it still faces several challenges that have resulted from mismanagement and corruption. According to Eskom, progress has been made to address irregularities, improve processes, and strengthen controls.
Eskom further says there is continued focus to address the shortcomings related to the reporting process regarding irregular expenditure in terms of the Public Financial Management Act, which led to qualified audit opinions in recent years. According to Eskom, its management is currently evaluating the impact of the changes to disclosure requirements.
In December, when announcing its results for the financial year to the end of March 2022, Eskom announced a net loss of R12.3 billion. Irregular expenditure amounted to R67.1 billion while fruitless and wasteful spending amounted to R5 billion. Losses due to criminal conduct amounted to R2.8 billion.