South Africa’s finance minister has exempted the broken Eskom power monopoly from disclosing irregular spending in its audited annual financial statements for three years in order to shore up the blackout-prone utility’s international credit rating.
Enoch Godongwana issued the exemption because of the risk of a negative outlook from credit rating agencies over the information, according to a letter to Eskom’s chair released on Monday.
Eskom, which is battling waste and the looting of ageing coal power stations as it imposes near-daily severe rolling blackouts, will have the dispensation for the 2022-23 financial year that ended in March, and for the next two years, according to an official notice that was published on Friday.
Eskom must still officially disclose losses due to criminal conduct and will have to include information about irregular and wasteful spending in annual reports, the South African Treasury said.
If the transactions were provided in notes to its financial statements, Eskom would risk receiving a qualified audit opinion for not complying with public finance laws, and possibly breach covenants on its R400bn ($22.5bn) debt, the Treasury added.
That would “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”, it said.
The exemption angered business groups, civil society and the political opposition to President Cyril Ramaphosa’s ruling African National Congress, who have demanded greater transparency over Eskom’s finances given the severity of the energy crisis.
“It is unacceptable to hide material financial information from auditors in the hope of obtaining a better audit outcome,” said Dion George, finance spokesperson for South Africa’s main opposition Democratic Alliance.
Auditors have hedged their views of Eskom’s finances for years over failures to properly report irregular spending under public finance legislation, and the spread of corruption and rot at the indebted utility.
South Africa’s Treasury is already embarking on a costly exercise to bail out two-thirds of Eskom’s debt burden, including a partial takeover of some of the loans in the years ahead.
Transnet, the state ports and freight rail operator that is also in crisis, received a similar exemption in 2022 from disclosing irregular spending for three years of annual financial statements.
“Eskom has every intent to continue investigating and determining irregular expenditure and fruitless and wasteful expenditure and will continue with appropriate consequence management proceedings,” Mpho Makwana, Eskom’s chair, said in a letter to the finance minister that was made public on Monday.