Eskom PFMA Exemption Bid Sparks South Africa Electricity Sector Liberalisation Debate

• The City of Johannesburg owes Eskom R7 billion, prompting Eskom to initiate the Paja process.
• An attempt was made in 2023 to exempt Eskom from the PFMA, which would have discharged Eskom from its responsibility to disclose irregular and fruitless expenditure.
• The unbundling of Eskom aims to maximize efficiency by partnering with stakeholders, but has raised concerns about potential changes in accounting practices and lending agreements.

What needs to happen now is that it must compete in a competitive market, so we are going to remove the structures – because Eskom cannot be subjected to the PFMA and then compete with people who don’t have those structures.

The City of Johannesburg owes Eskom R7 billion, a debt that has been accumulating for years. Despite efforts to rein it in, the city has failed to meet its debt obligations, prompting Eskom to initiate the Promotion of Administrative Justice Act (Paja) process. This process allows Eskom to proceed with potential power interruptions or disconnections across the metro if the city does not comply. The Paja notice was first issued in May and has been extended to 22 August to allow Eskom to assess representations received and monitor the city's compliance. Meanwhile, Kgosientsho Ramokgopa has intervened in the tensions between Eskom, CoJ, and City Power, brokering a deal that stopped the power utility from disconnecting or reducing supply to Johannesburg earlier this year.

An attempt was made in 2023 to exempt Eskom from the Public Finance Management Act (PFMA), which would have discharged Eskom from its responsibility to disclose irregular and fruitless expenditure in its annual financial statements. This move was part of a broader effort to liberalize Eskom, as endorsed by President Cyril Ramaphosa. The unbundling of Eskom into separate generation, transmission, and distribution entities aims to maximize efficiency by partnering with stakeholders, including independent technology sources, expertise, and capital. However, this process has raised concerns about potential changes in accounting practices and lending agreements.

The proposed exemption of Eskom from the PFMA could have significant implications for the electricity sector. If successful, it would allow Eskom to compete with other players without being subject to the same regulatory requirements. However, this move has been met with skepticism by some, who argue that it may lead to changes in accounting practices and lending agreements. As Kgosientsho Ramokgopa noted, part of liberalizing Eskom requires levelling the playing field, but this must be done carefully to avoid unintended consequences.

Lawyers and compliance officers should watch for the potential impact of Ramokgopa's plan to exempt Eskom from the PFMA, which could lead to changes in accounting practices and lending agreements.

Source: Original reporting via Business Day