CEO scores R5m amid new claims of incompetence

Coal has come back to haunt Eskom.

Over the past two weeks, internal Eskom documents came to light suggesting the mismanagement of coal resources and contracts, not only helped precipitate the current power crisis, but that Eskom was aware of the situation prior to the blackouts of January 2008.

The documents, made public by the Democratic Alliance (DA), reveal that coal procurement and management was so bad that Eskom was allegedly burning contaminated fuel and overseeing the disappearance of hundreds of thousands of tons of coal from its power stations.

An internal Eskom memo also suggests that the problems were long-standing and go back to 2006, the year it was drawn up.

The internal memo references an investigation into irregularities at coal analysis laboratories, which saw Eskom overpay by about R100-million for substandard coal.

The memo states that the investigation, conducted by Deloitte & Touche, suggested ”irregularities amounting to unlawful and probably illegal, conduct had taken place on a massive scale over a period of several years”.

Another document dated mid-2007, six months before Eskom’s power crisis came to a head, from US-based consultant Susan Olsen, to CEO Jacob Maroga, raised detailed concerns regarding the running of the company’s coal procurement and management operations.

The mismanagement of coal supplies and stocks was one of the primary reasons Eskom was forced to introduce load-shedding last year. In a bid to rebuild its perilously low stockpiles and ensure security of supply, Eskom has been forced to buy coal on the spot market at high prices.

The company did so at severe cost to its bottom line. Primary energy, made up predominantly of coal, cost the company R25,3-billion over the last financial year, helping drive Eskom R9,7-billion into the red.

The concerns listed in the memo point to a company unit in deep trouble.

They include the inexperience of staff at the generation primary energy (GPE) unit, citing their ”lack of experience in and failure to grasp the basics of commercial negotiations”. This team, it noted, constantly changing and ”drawn from assorted disciplines” was pitted against permanent negotiating teams from mining houses that it asked to table the draft agreements and associated prices for coal supply contracts — a recipe for ”consistent failure”.

It noted that GPE staff purchased coal under un-signed contracts, while relying on ”precedents” to ensure that the mining houses performed to their requirements.

Furthermore, it noted that the GPE failed to enforce the quantity provisions of existing coal supply agreements, leading to an ”opaque programme of buying to make up the gaps” required to produce electricity.

It noted that a failure by the GPE to enforce the quality provisions of coal contracts damaged Eskom’s generation plant and equipment.

The memo alleges that according to mining houses the GPE developed a contract quality specification that allowed mining houses to add contaminants to coal.

”GPE allows mining houses to deliver effluent from preparation plants because is has failed to define coal in accordance with a specific set and range of qualities.”

The memo also stated that because of the inability to track coal supplies, 80 000tons of coal ”went missing” at Arnot while 278 000tons ”went missing” at Kriel, during an unspecified period.

Eskom denied that any illegal activity had taken place and stated that it has taken steps to rectify concerns raised.

In respect of the internal memo, it stated in March 2005 that one of its coal suppliers informed Eskom that it had become aware of irregularities concerning laboratory analyses results.

The irregularities were in the form of invoices containing false information being submitted to Eskom and the supply of below specification coal for a period of time to Eskom. The company said it has acted upon the finding of the Deloitte & Touche investigation and instituted legal action in respect of the financial prejudice it suffered.

With regard to the Olsen memo the company said it has taken steps to rectify the concerns raised.

”At the date of the Olsen memorandum, there were four unsigned contracts on file. This situation has been rectified with the exception of one contract, which is fully enforceable in terms of the contractual remedies,” Eskom told the Mail & Guardian. ”Eskom and its coal supplier are finalising negotiations to optimise the use of the coal reserve ensuring it will meet the full coal requirement over the life of the power station.”

Eskom said that it would continue to investigate any allegations brought to its attention, relating to unlawful conduct of any of its employees or suppliers.

The documents came to light as Eskom staff reportedly wrote to Public Enterprises Minister Barbara Hogan, calling for an independent audit of the company’s finances and criticised Maroga’s leadership.

Spokesperson for the Department of Public Enterprises Ayanda Shezi confirmed the receipt of the letter, and said that the minister had referred the letter and allegations on to the Eskom board for investigation.

Last week Maroga reportedly told the media that he had received Olsen’s report and that he passed it on to the relevant managers to deal with.

Maroga and Eskom chair Bobby Godsell appeared before parliament’s portfolio committee on public enterprises on Tuesday to answer questions on the state of the utility.

According to the DA, however, the allegations raised in the memo were not addressed in Parliament, as committee chairperson Vytjie Mentor ”refused to accept” the Eskom memos, deeming them public submissions and inadmissible.

Manie Van Dyk, the DA’s shadow minister for public enterprises, expressed grave concern for what he claimed appeared to be the protection of Eskom and Maroga. The DA will request that Eskom make another appearance before Parliament to answer questions, he said.

Meanwhile, trade union federation Cosatu slammed Maroga’s salary increase of 27%, to R4,96-million, as the utility faced massive losses.

A statement from Cosatu stated that: ”Even [if] Maroga’s salary was a reward for increased profits, it would be excessive, but Eskom expected to make a loss of R10-billion this year! If CEOs are rewarded for rising profits why are they not penalised for rising losses?

”How can a public utility, which is mandated to provide an efficient and affordable service to the people of South Africa possibly justify paying out such a vast salary to the person in charge?”

Similarly, the National Union of Metalworkers of South Africa called the increase ”immoral and excessive”.


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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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