GHALEB CACHALIA: Is finance ministry’s move on Eskom reporting ham-fisted or sinister? – BusinessLIVE

Surprise cut in crude output by Opec+ fuels renewed inflation fears
The ANC will do almost anything, however ill-crafted, to find sources of money for failed state-owned enterprises
Forensic accountants and financial analysts to focus on money laundering and dodgy deals
The opposition party resolves to safeguard the independence of the Reserve Bank
Deal calls for an all-share combination of Investec Wealth & Investment UK and Rathbones Group
Business Day TV speaks to chair of the Brics council, Busi Mabuza
Business Day TV spoke to an agricultural economist Thabile Nkunjana
Former US president faces 34 counts of falsifying business records in case involving hush money allegedly paid to a former porn star
World No 2 says he what it takes to complete Grand Slam of four Majors
In-car parking information has overtaken traffic information according to a global survey
This government seems to be a dab hand at the dubious art of shooting itself in the foot.
It appears, in the face of forecasts of a lacklustre economy for the foreseeable future, that the ANC will do almost anything — however hare-brained and ill-crafted — to find sources of money for failed state-owned enterprises (SOEs), when they should actually be privatised.  
The latest request by Eskom, granted by the finance ministry, is to move reporting of fruitless, wasteful and irregular expenses off its annual financial statements. The terms “irregular”, “wasteful” and “fruitless” expenditure are not specifically accounting terms. They straddle, inter alia, contraventions of accounting rules and reporting on corruption and criminality and are rooted in the Public Finance Management Act (PFMA). As such, the auditor-general more often than not considers these as grounds to qualify audit findings, which has an adverse effect on existing debt covenants between lenders and SOEs.  
The effect on debt covenants notwithstanding, it is clear that government is now trying to help Eskom raise much-needed capital to pay for the various fixes the entity sorely needs to close the electricity generation gap, which results in chronic load-shedding, and the deleterious effect this is having on businesses, SA’s economic growth prospects and the lives of all South Africans. 
To achieve this and avoid yet another bailout the fiscus cannot afford, the government is already taking a hefty portion of debt off Eskom’s balance sheet, thereby assisting the utility to raise debt in the market. To be able to do this Eskom needs unqualified audits, among a host of other requirements ranging from the appropriate level of expertise to the banishment of impediments imposed by government policy and practice.  
Now it will not need to report fruitless, wasteful, unauthorised and irregular expenses in its annual financial statements, but will instead report them in its integrated report because, it is argued, there are many legacy issues that are carried over year on year, thereby muddying the waters of a utility ostensibly on the mend. 
The problem is that the integrated report has no statutory standing and effect and, while it will assist in separating legacy issues that have a negative effect on the raising of debt and may assist in better and speedier operational effectiveness in the future, it also opens the door to additional transgressions. The intent is therefore suspect, and the effect thereof not open to statutory sanction. This will not sit well with prospective lenders who conduct proper due diligence.
Legacy issues can in any event be explained in the notes to the financial statements. Financial journalists and prospective lenders will want to know why the entity is unable to adequately and accurately account in the audited statements for all the financial effects of the transactions and activities it has conducted. 
The finance minister granted Eskom the exemptions in a special Government Gazette issued on March 31, the last day of the financial year. They grant Eskom exemption from Section 55 (2) (b) (i) of the Public Finance Management Act (PFMA) for 2022/23 and the following two years.  
The letter to Eskom’s chair, Mpho Makwana, detailing the ministry’s concurrence with his request is a poorly crafted document, and its rationale appears not to take into consideration the effect it may have on both existing loan covenants and the prospect of Eskom raising money in future. Now that its content is public knowledge the exercise may well backfire. 
To complete the picture, it would be useful to have sight of the letter from Eskom’s Makwana that requested the removal of these reporting items from the annual financial statements. I understand the standing committee on public accounts (Scopa) is applying for a special meeting on an urgent basis for the the Treasury to brief the committee on the matter.  
Many questions abound, and in the face of disbelief from industry experts, commentators and journalists about Eskom and government’s actions, as the DA’s spokesperson for public enterprises and a member of the parliamentary committee on public enterprises, I have made a similar request to the chair of the committee to invite Makwana and his board to explain the rationale and avail himself to questions from members of the committee. 
Transparency is key, and parliamentary oversight of this SOE, especially under current circumstances, must be a priority of the highest order. 
• Cachalia, an MP, is DA public enterprises spokesperson.
Would you like to comment on this article?
Sign up (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.
© 2023 Arena Holdings. All rights reserved.
Use of this site constitutes acceptance of our Terms & Conditions and Privacy Policy.


Leave a Comment

Your email address will not be published. Required fields are marked *