Eskom’s botched bid to impress lenders will likely have the opposite effect, according to the chief whip of the Inkatha Freedom Party, Narend Singh.
On Friday 31 March, National Treasury announced that Eskom would be exempted from publishing information on irregular, fruitless, and wasteful expenditure in its financial reports.
Other institutions need to report these instances in financial statements under the requirements of the Public Finances Management Act.
Eskom would still have been obligated to report these instances in its annual report but would be allowed to omit them from its financial reports.
Treasury claimed the exemption would still subject Eskom to oversight on the expenditure categories, but would stand a higher chance of avoiding a qualified audit opinion on its financial results.
A qualified audit would trigger loan covenants, which would impose extra conditions on loans that Eskom entered into and increase borrowing costs.
Treasury warned that increased borrowing costs could increase fiscal pressure in the future.
However, the government received severe backlash from the proposed exemption and finance minister Enoch Godongwana has revoked the proposed exemption, “for now”.
Godongwana said that comments from the public and from the auditor-general prompted the decision to withdraw the government gazette, so that “the framing is proper and the checks and balances are tightened”.
Twist of fate
Singh suggested that the blunder of trying to push this exemption through could increase borrowing costs anyway.
“What has happened over the last few days leaves a bad taste in one’s mouth,” he said. “It is not just about Eskom, and the ability of lenders to give money to South African state-owned enterprises and to South Africa at large. But it’s about the credibility of the National Treasury and the government in the bigger scheme of things.”
He said that the way the exemption proposal has panned out, all lenders will be looking at South Africa with a microscope.
Singh said that everyone perceived the move as a statutory cover-up where results were manipulated so that the utility could be made to look good.
“Sanity has prevailed”, and the right decision has been made to withdraw the exemption proposal, he said.
Karam Singh, the executive director at Corruption Watch echoed Narend Singh’s point, saying that the the move was “ill conceived and sent the wrong message”.
“The proposed exemption sent the wrong message in a context where we seek to tackle corruption head on,” Singh told Daily Investor.
The broad public outcry over the exemption provides some indication as to how the public felt, he said
Democratic Member of Parliament Dion George said that the proposal has “damaged our reputation even more than it was already damaged”.
South Africa was greylisted owing to transparency concerns, and fiddling with the system to get a better audit outcome did nothing to help this.
He said, “We have gone through amateur hour here”, and institutions like rating institutions will notice.
The government has also terminated the declaration of the state of disaster over load-shedding that was announced just two months ago.
A government gazette released by the Department of Cooperative Governance and Traditional Affairs confirmed this.