Eskom about-turn welcome – but crucial step still to be taken

5 April 2023

Government’s dramatic about-turn on Eskom – withdrawing the audit exemption, and lifting the electricity state of disaster – is welcome, but there is one more crucial step it can take to advance transparency at the national power generator, and better serve the national interest: scrap racially preferential procurement in favour of value for money.

The Institute of Race Relations (IRR) has conveyed these sentiments in a letter to Eskom Board Chairman Mpho Makwana, in which it highlights the findings and recommendations in the report of the State Capture Commission under Chief Justice Raymond Zondo.

On Monday 3 April, the IRR wrote to finance minister Enoch Godongwana urging him to reconsider exempting Eskom from having to disclose irregular, fruitless and wasteful expenditure. His decision to backtrack on this is welcomed.

The IRR also welcomes the ending of the electricity state of disaster, having written to the Cooperative Governance and Traditional Affairs (GoGTA) ministry on 10 February 2023 appealing to them to do so.

Important though these developments are, the next step is crucial.

On 9 March 2023 Chairman Makwana wrote to Treasury, CC-ing Minister of Public Enterprises Pravin Gordhan, to request an exemption from reporting annual irregular, fruitless, and wasteful expenditure in its annual financial statements. In support of this Makwana wrote that “the consequences of having to report ALL irregular expenditure and ALL fruitless and wasteful expenditure in the annual financial statements are severe and, in most cases, entirely disproportionate to their relevance to Eskom’s financial position [caps in original].”

Makwana explained that the “effect of such exemptions…is that material losses due to criminal conduct, irregular expenditure and fruitless and wasteful expenditure” among other particulars “will no longer be subject a to full audit by the Auditor-General South Africa [sic].”

Makwana requested exemption from such “full audit” strictures to avoid the “threat of a qualified audit” on the submission that avoiding such a negative finding “will provide relief to Eskom in circumstances where its financial position is constrained, and the cost of borrowing is a major concern in its financial recovery efforts.”

But there is another way to become more creditworthy, which is to become more credible.

In its letter to Makwana, the IRR highlights the practical way to achieve this outcome, in line with the analysis of the Zondo Commission report.

As IRR Head of Campaigns Gabriel Crouse said in a February interview, just after the electricity state of disaster was implemented: “This seems like exactly what you would do if you are trying to blind parliamentary oversight in order spend money in shady ways (kickbacks and corruption basically) and in order to negate that fear or placate it there needs to be some answers.”

On the current developments at Eskom, Crouse said: “I think one of the most powerful lessons of the Zondo Commission report that we want to share with Chair Makwana is that there needs to be a systematic approach to beating corruption. The report shows that it is a mistake to think we just have more corrupt people in South Africa, or that this is just bad luck with a few bad apples. Instead, the report shows that the system’s design effectively entices corruption and will continue to do so until the design is changed.”

In a section titled “Problems in the legislative design”, the Zondo Commission report stated that the current system “leaves a critical question unanswered: is it the primary intention of the Constitution to procure goods at least cost or is the procurement system to prioritise the transformative potential identified in section 217(2)? There is an inevitable tension when a single process is simultaneously to achieve different aspirational objectives.”

The report notes cases where “one or other of these two objectives must be preferred” and describes “negative repercussions when this delicate and complex choice has to be made, by default, by the procuring official.”

“Ultimately”, the Zondo report concluded, “the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.”

This is the advice that the IRR has shared with Chairperson Makwana. Furthermore the IRR has shown that Makwana can apply for exemptions from race-law considerations in Eskom procurement to Minister Godongwana. These exemptions, unlike the request for an audit exemption, are constitutional.

Such exemptions would also match public sentiment.

Asked in an independent survey commissioned by the IRR in 2020, “Who should be appointed to jobs in SA?”, 17% of respondents endorsed the view that “only” black people should get jobs, either “for a long time ahead” or “until demographically representative”, while 82% endorsed appointment on “merit”, either “with special training for the disadvantaged” or “on merit alone, without such training”. The breakdown was similar within race groups.

 When asked in a similar poll in 2022, “Do you believe that South African sports teams should be selected only on merit and ability and not by racial quotas?” over 90% of respondents said “yes”, again with a similar breakdown within race groups.

IRR Campaigns Manager Mlondi Mdluli said: “Reversing the anti-transparency exemption is good, but the vital step forward has to be implementing the Zondo Report recommendation to put value for money over racial procurement at Eskom. Everyone needs power."

Issued by Gabriel Crouse, IRR Head of Campaigns, 5 April 2023