South Africa will exempt its beleaguered power utility from reporting irregular spending for the next two years to avoid harming the company’s credit rating.
The decision was announced in a government gazette on 31 March. In a letter to Eskom’s chairman, Mpho Makwana, Finance Minister Enoch Godongwana said Eskom will still need to report losses arising because of criminal conduct and disciplinary measures related to wasteful expenditure.
Godongwana asked Eskom to come up with a plan to detect such expenses in a timely manner. In the meantime, exempting the company from reporting the costs may reduce the risk of a qualified opinion from the utility’s auditors. That, in turn, will protect the company’s credit rating, according to the Treasury.
In December, Deloitte & Touche, Eskom’s auditor, said it had identified irregular expenditure, fruitless and wasteful costs and losses due to criminal conduct. That prompted Deloitte to say that Eskom may not be able to continue as a going concern.
The exemption was made “after due consideration of the risk of a possible negative outlook on Eskom’s corporate rating and credit assessment with the credit rating agencies,” Godongwana wrote.
Eskom, which is rated CCC+ by S&P Global Ratings, and the Treasury didn’t immediately reply to requests for further comment. Deloitte said it couldn’t immediately comment.
The Treasury in February announced it would take over R254 billion of Eskom’s debt as the company isn’t earning enough to cover its debt service and running costs. As a result the country is experiencing regular rotational blackouts.
S&P put Eskom’s debt assessment on positive watch, meaning it may upgrade the utility after the government announced the plan to take over part of the debt.