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Eskom in the spotlight as Parliament's Inquiry begins


 

Witnesses summoned to the inquiry could expose the culpability of government ministers.

by Anton Eberhard and Catrina Godinho


Parliament will soon begin its inquiry into Eskom and other state-owned enterprises. As it summons witnesses to give evidence, further details will come to light around the repurposing of governance and the centralisation of rent-seeking opportunities to unlawfully benefit a politically-connected elite. If parliament fulfils its constitutional mandate, the fingerprints of the president, the Gupta family and its associates, ministers Gigaba and Brown, and implicated Eskom board members and management, will be revealed.

Looking back, we can see what happened. Shortly after Zuma ascended to the presidency in 2009, he expressed an unusual degree of interest in board and management appointments to Eskom and Transnet. Public enterprises minister Barbara Hogan’s resistance to dubious cadre deployments soon cost her job.

Hogan’s replacement, Malusi Gigaba, was more yielding. One of his first moves was to overturn a procurement decision that the Eskom executive and board had signed off on - the replacement of Koeberg steam generators. Soon after, Gigaba gutted the Eskom board and agreed to new appointments - most of whom had no corporate or electricity sector experience.  

The previous decade had seen relatively stable and strong leadership in Eskom. Reuel Khosa had chaired an Eskom board that incorporated as many as three CEOs from international power companies. Yet, for Zuma, this experience was no longer valued or fit for purpose.

Eskom CE Brian Dames, who managed the state’s most economically important and largest state-owned company, was treated appallingly by Gigaba. Letters were delivered to his office indicating that his services were to be dispensed with, then extended, and then terminated, with scant notice.  He also received anonymous death threats.

Gigaba eventually appointed Collin Matjila acting CEO in March 2014, against then Eskom chairman Zola Tsotsi’s advice. Gigaba was influenced, in part, by entreaties made by Group Technology and Commercial Executive, Matshela Koko. Subsequently published #gupaleaks emails also revealed that just days before the appointment, Gupta lieutenant Salim Essa circulated Matjila’s CV to Tony ‘Rajesh’ Gupta and Duduzane Zuma.

President Zuma’s second term generated more aggressive governance changes to grease the wheels of rent-seeking at Eskom. Lynne Brown replaced Gigaba as Minister of Public Enterprises in May 2014. Matjila had already signed the controversial R43 million deal with the Gupta’s New Age newspaper, and further used his time as acting CEO to sabotage the Koeberg steam generator tender and an IT contract that could have saved Eskom a billion rand - instead favouring T-Systems, a company lobbied for by Gupta associate Essa.

Ending Matjila’s run on the utility, Brown appointed the former DG of Public Enterprises, Tshediso Matona, CEO in October 2014. Unfortunately for him, she also appointed a new board that December – packed with Gupta associates. Allegedly, Essa acted as an intermediary between the Minister and the new board and informants have confirmed meetings at Brown’s residence where the Guptas were present.

Once Matona launched a tender for the provision of forensic and anti-corruption consultation services for Eskom in January 2015 – later awarded to Dentons law firm – it was clear that he could not survive. But the shock suspension of four executives – including Matona – in March, followed by the ousting of Tsotsi as Eskom’s chair just a few weeks later, was clearly not the move of a fledgling board. Eskom’s very own Ides of March was orchestrated from the highest level.

President Zuma not only personally called the DG of Public Enterprises to put this in motion (Brown was in Dubai at the time), but also summoned Tsotsi to his Durban residence where Dudu Myeni relayed the President’s instructions.

The President’s favourite – Ben Ngubane – was then appointed board chairman, despite previous efforts by the ANC to prevent this. Brown also agreed to second Brain Molefe, along with his right hand man Anoj Singh, from Transnet.

Dentons’ contract was terminated just two months after their investigation began and the ever self-proclaimed victim of misinformation, Minister Brown, withheld the report - containing the names of guilty parties and damning evidence of their wrongdoing – from parliament and the public. Brown also kept the report from the Eskom war room and Deputy President Ramaphosa, who had been charged by cabinet to restore electricity supply security and improve governance at state-owned companies, greatly undermining this critical work.   

The governance of Eskom thus captured and repurposed, the next period witnessed the scaling up of grand corruption – with the Guptas now managing the complex enterprise of brokering and money laundering. The chutzpah of the Guptas since has been astounding.

The most boldfaced examples include Eskom’s facilitating and financing of the Gupta’s acquisition of Gelncore’s Optimum Coal Holdings. This scheme had already started under Gigaba, when coal major Glencore was driven into ‘business rescue’. But it was Eskom chief executive Molefe – partnered with Singh, Koko, and Mines Minister Zwane – that made the heist possible. While Glencore was shaken down, Gupta’s Tegeta benefited from an Eskom guarantee (R1.6 billion), a hefty and unusual pre-payment (R600 million), and additional lucrative coal contracts – effectively enabling them to buy Optimum. Further instances of Gupta-favoured coal contracts and the squeezing out of major coal-miners will be revealed in Parliament’s inquiry.

Eskom has also funnelled at least R500 million to the advisory firm Trillian – majority owned by Essa, until recently – under the pen of CFO Anoj Singh. An independent review – which Eskom lied about and ignored – flagged these deals as irregular. But Trillian was not only used as a conduit to transmit money to Gupta-connected networks, it was also used to legitimise irregular Eskom processes – including the awarding of the multi-billion-rand tender for the refurbishment of Duvha power station boilers to Dongfang (since interdicted by the courts).

But, too much remains in the shadows - Koko’s contracts with his step-daughter’s company, Impulse, during his tenure as acting CEO, the irregular diesel contracts to supply emergency turbines (snuck through during the load-shedding years), hefty maintenance contracts for old plants, and the gargantuan construction contracts for new builds Kusile, Medupi, and Ingula, as well as the president’s ambitions to procure a fleet of unneeded and expensive nuclear power stations. Eskom’s qualified audit also raises serious concerns around internal financial and risk controls, including why Eskom let go two major international auditing firms in previous years.

Just as the details of the political project to undermine and repurpose Eskom’s governance to facilitate massive rent-seeking and corruption are coming to light, so too are the dire consequences of the forays made into Eskom coal, equipment, IT, media and advisory procurement contracts. Eskom’s finances are in trouble. Though revenues are stagnant, costs are rising and massive debt needs to be financed. The utility now poses a significant threat to the fiscus and to economic growth prospects in South Africa. The costs of the Zuma era are all too evident.

Parliament’s Inquiry is positioned to further illuminate how Eskom has come to where it is today, and to expose those responsible. Hopefully it will also recommend improvements to the governance of South Africa’s state owned companies, as well as the restructuring of the power sector, which would protect electricity supply from subversion in the future.   


** On Tuesday, 12th September 2017, the authors launched a reference booklet to support the Eskom inquiry process. It can be downloaded here.

* Eberhard is a professor and Godinho a PhD student at UCT’s Graduate School of Business.

 

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