/ 8 February 2008

Moosa in R38-billion tender conflict

Eskom board chair Valli Moosa presided over the parastatal giving contracts worth billions to African National Congress (ANC) funding company Chancellor House — while also serving on the ANC’s fundraising committee.

Eskom would not say this week whether Moosa had declared a conflict of interest or recused himself when his board decided on the contracts. Moosa did not return calls.

The board made crucial decisions about the award of two contracts, together worth R38,5-billion, to a consortium that includes the ANC ­company.

The two contracts combined dwarf all separate parts that make up the -­controversial arms deal and may be the largest procurement in South African history.

The ANC-linked consortium will supply six giant boilers for each of two new power stations Eskom is building to ramp up generating capacity.

Now Moosa, a former Cabinet minister, must explain how he reconciled his duties chairing the Eskom board, which answers to government and should serve the public at large, with his role as ANC fundraiser.

The committee

Moosa has served on the ANC’s national finance committee since at least the party’s Stellenbosch national conference in December 2002. He appears central to the committee’s workings — he was the only one of six members to be reappointed following the change of guard at the ANC’s Polokwane national conference in ­December.

The committee, a substructure of the ANC national executive committee, is chaired by the party’s ­treasurer general. The ANC constitution states that the treasurer general and the committee are ‘responsible — for working out and executing plans for fundraising”.

The company

Reporting to the Polokwane conference, outgoing treasurer general Mendi Msimang described how at the time of the Stellenbosch conference five years earlier ‘the movement was going through the most difficult period in its financial life — It was important that we establish a platform of our own to be self-sufficient.”

Msimang said his office then ‘inspired the creation of investment mechanism [sic] that will ensure funding the movement on a sustainable basis”. He added that ‘the national finance committee of the ANC is proud to report that we have achieved a sound financial position. To build a sound portfolio of investments has taken us a long time to put together. But it has been worthwhile.”

Msimang appears to have been talking mainly about the Chancellor House group Chancellor House Holdings, the main company, was established within three months of the Stellenbosch conference.

The Mail & Guardian and the Institute for Security Studies corruption and governance programme revealed in 2006 that Chancellor House was set up with the sole purpose of funding the ANC, through the Chancellor House Trust.

Former North West premier Popo Molefe is one of two Chancellor House trustees.

He served alongside Moosa on the ANC finance committee after Stellenbosch and is also Moosa’s private sector business partner in Lereko Investments, a prominent BEE firm.

This left Moosa conflicted on two counts when the Eskom board made decisions affecting Chancellor House: As a member of the ANC finance committee he was custodian of the party’s interest in Chancellor; and as Molefe’s business partner there was a personal connection one step removed from Chancellor.

The contracts

Eskom’s board gave the go-ahead for the construction of Medupi, the para­statal’s new coal-fired power station in Limpopo, in December 2005 ­– four months after Moosa became the ­utility’s chairperson.

Engineering company Hitachi Power Africa concluded its ’empowerment” transaction with Chancellor House in the same month, company registration records show. Chancellor acquired 25%.

The tender process for Medupi’s boilers started in March 2006, and Hitachi Power Africa and Hitachi Power Europe formed a consortium to bid.

Last November Eskom announced the contract, for six boilers, had been awarded to the Hitachi consortium. In December, Eskom contracted with Hitachi for a second set of six boilers, this time for its yet-unnamed ‘Project Bravo” power station in Mpumalanga, without a further tender.

The two boiler contracts are worth R38,5-billion, of which Chancellor House has an estimated R5,8-billion stake through its 25% shareholding in Hitachi Power Africa and the latter’s 60% stake in the Hitachi consortium.

The controversy

In a detailed statement after the M&G first raised the alarm late last year, Eskom said consultants Deloitte had confirmed the process ‘to be fair, transparent, equitable, cost-effective and competitive and not biased towards any predetermined outcome”.

It said a consortium of engineering firms, Alstom and Steinmüller, had originally outscored Hitachi, and that the board had approved the award to them. Only after Alstom-Steinmüller hiked its price following a difference of opinion over the scope of the work were negotiations reopened with Hitachi — which then ’emerged as the preferred bidder on an objective basis”.

The Eskom board confirmed the award to Hitachi. It also approved the negotiation and conclusion of the Project Bravo boiler contract with Hitachi, even though this was not part of the original tender, based on the advantages of a ‘fleet strategy”.

Large questions about this process include:

  • Why did Hitachi Power Africa empower party vehicle Chancellor House, rather than an ordinary BEE firm, as the tender process presided over by Moosa was about to start?

  • Eskom says the Deloitte reports confirming the integrity of the process found no conflicts involving Eskom employees, executives or board members. The reports presented to the board also considered the involvement of Chancellor House but found ‘no evidence of any political influence”. Why did Deloitte miss Moosa’s obvious conflict of interest? And did Moosa, in response, own up?

  • Was it correct to revert to Hitachi after Alstom-Steinmüller raised its price, and were apples compared with apples? The M&G understands Hitachi interpreted the scope of the work in the same way as Alstom-Steinmüller. Did its contract price not also increase?

  • Was it correct to contract with Hitachi to supply the Project Bravo boilers, almost doubling the contract price, without a further tender or giving Alstom-Steinmüller an equal chance to negotiate?

  • What role did Moosa play in the eventual awards to Hitachi? There is no evidence he recused himself when the board confirmed both contract awards to Hitachi.

Eskom policy states that conflicts must be declared and ‘where there is a conflict of interest, that person is required to recuse himself/herself from the tender process”.