Ramokgopa: Pushes Eskom PFMA Exemption Proposal for Cabinet Approval

• Minister Kgosientsho Ramokgopa proposes exempting Eskom from the Public Finance Management Act (PFMA) to enhance its competitiveness in the electricity market.
• The Minister also seeks to extend Eskom's social obligations to private power producers, including those with bilateral contracts.
• Experts like Peter Attard Montalto and Anton Eberhard question the legal viability and necessity of these measures, noting Eskom's current 70% generation market share and the PFMA's critical oversight role.
• Critics suggest that targeted "carve-outs" from specific PFMA sections, rather than a full exemption, could provide Eskom with agility while maintaining accountability.
• The proposals are slated for submission to cabinet following consultations with Finance Minister Enoch Godongwana, potentially altering procurement and competitive dynamics in the energy sector.

The debate highlights a fundamental tension between empowering state-owned enterprises to operate with commercial agility and maintaining crucial fiscal oversight and equitable market conditions.

Minister of Electricity and Energy, Kgosientsho Ramokgopa, is advocating for significant policy shifts aimed at bolstering Eskom's competitive standing within South Africa's evolving electricity market. Central to his proposals are two key measures: the "liberation" of Eskom from the stringent requirements of the Public Finance Management Act (PFMA) and the extension of Eskom's social obligations to private sector entities, even those operating under bilateral contracts.

Minister Ramokgopa articulated his rationale at a recent Unisa School of Business Leadership event, arguing that the PFMA currently "hamstrings" Eskom. He believes the state-owned utility lacks the necessary flexibility and speed to effectively compete with various private generators and navigate the South African Wholesale Energy Market (Sawem), unlike its private counterparts. This perceived disadvantage, he contends, prevents Eskom from seizing opportunities swiftly.

To advance these changes, Minister Ramokgopa has indicated his intention to submit a comprehensive proposal to the cabinet. This submission will follow consultations with Minister of Finance Enoch Godongwana, with Ramokgopa expressing confidence in the compelling nature of his case for these reforms.

The proposed exemption of Eskom from the Public Finance Management Act has drawn scrutiny from legal and financial experts. Peter Attard Montalto, managing director at Krutham, has questioned the legal feasibility of such a move. Chartered accountant Khaya Sithole, director at Corusca Consulting, draws parallels between Ramokgopa's argument and that made by Vuyani Jarana in 2019 when he resigned as CEO of South African Airways (SAA), who explicitly cited the PFMA as a competitive disadvantage for the airline, likening it to a horse with tied hind legs.

Sithole highlights the PFMA's crucial role as an instrument designed to instill discipline and prevent chaos in public procurement and resource management, providing standardized rules and guidance. However, he acknowledges that while essential, it can indeed be paralyzing in a competitive environment. He further points out that despite the PFMA, Eskom has continued to face operational challenges.

Both Sithole and Anton Eberhard, emeritus professor at the University of Cape Town Graduate School of Business’s Power Futures Lab, suggest that a complete abolishment of the PFMA for Eskom may not be necessary or advisable. Instead, they propose a more targeted approach, such as specific "carve-outs" or exemptions for particular sections of the Act. Eberhard notes that Eskom has previously received PFMA exemptions, for instance, to negotiate directly with original equipment manufacturers (OEMs), demonstrating a precedent for tailored flexibility while maintaining overall oversight. Sithole emphasizes that Ramokgopa should specify which sections of the PFMA require exemption to ensure proper scrutiny and grant Eskom the necessary agility.

A key point of contention revolves around the actual competitive landscape and the proposed extension of social obligations. Contrary to Minister Ramokgopa's assertion that Eskom is disadvantaged, Professor Anton Eberhard argues that Eskom still commands approximately 70% of the generation market, suggesting the private sector is, in fact, at a disadvantage. This perspective underscores a fundamental disagreement on the current market power dynamics.

Regarding the proposal to subject private sector electricity entities to Eskom's social obligations, Attard Montalto contends that this overlooks the significant social contributions already made by these private players as part of their existing social license to operate. He suggests that the government's focus should instead be on securing the cheapest possible power to maximize economic growth, which he views as the most effective developmental approach, rather than imposing additional social burdens on private entities.

The Minister's proposals could significantly reshape the regulatory and operational environment for both state-owned and private entities within the South African electricity market. Lawyers and compliance officers in the sector should closely monitor these developments, as potential changes to Eskom's PFMA obligations and the extension of social responsibilities to private power producers could alter procurement processes, competitive dynamics, and compliance requirements.

While Attard Montalto acknowledges the need for justifiable procurement reforms to streamline approvals and processes for state-owned enterprises (SOEs), particularly given the Office of the Chief Procurement Officer's perceived lack of capacity and strategic intent, he maintains that National Treasury is unlikely to relinquish its fundamental oversight of state entities. The debate highlights a fundamental tension between empowering state-owned enterprises to operate with commercial agility and maintaining crucial fiscal oversight and equitable market conditions.

Lawyers and compliance officers in the South African energy sector should closely monitor Minister Ramokgopa's proposed cabinet submission. Potential changes to Eskom's PFMA obligations and the extension of social obligations to private power producers could significantly alter procurement processes, competitive dynamics, and compliance requirements for both state-owned and private entities in the electricity market.

Source: Original reporting via recent industry discussions.