Never ending tender haunts Eskom
Eskom’s lengthy, chaotic and acrimonious handling of a multibillion-rand tender for new steam generators at the Koeberg nuclear power station does not bode well for the government’s trillion-rand nuclear procurement plan.
The tender award is again ready for final sign-off but the board’s tender subcommittee has been unable or unwilling to do so, prolonging a process that has already taken more than three years, which suggests the confusion is continuing.
The two bidders are a consortium led by French nuclear vendor Areva and its American-Japanese rival, Westinghouse.
Westinghouse was twice on the brink of clinching the greater part of the contract based on the recommendations of Eskom’s nuclear experts, only for politically appointed decision-makers to block the award and change the decision-making process.
The indecision means that the losing bidder could drag out the process even further by seeking a judicial review of the award decision.
Any further delay could compromise Africa’s only operational nuclear power plant. Its steam generators must be overhauled by 2018 or risk what one senior Eskom source said is becoming a “nuclear safety matter”.
The interventions in granting the award can be justified but doubts linger about the underlying motives. In particular, questions must be asked about the length to which Eskom’s current board – and particularly its tender subcommittee – were prepared to go to review and overturn the recommendation of technical experts.
In April 2011, Malusi Gigaba – then the minister of public enterprises – vetoed the board’s recommendation of Westinghouse for the lion’s share of a three-part contract.
His reason was that Eskom had not sought ministerial approval of how the public money spent would boost local manufacturing.
Matjila at the helm
Gigaba dissolved the board soon afterwards and appointed the current board, with Zola Tsotsi as its chairperson and Collin Matjila as the chairperson of the board’s tender subcommittee.
The steam generator tender was cancelled and issued afresh, again in three parts.
In February last year, Eskom’s technical team resubmitted its recommended winner – understood to be Westinghouse once again for the bulk of the contract – to the subcommittee.
But, according to one Eskom executive, the subcommittee decided it “wasn’t competent” to approve the award and commissioned an external technical adviser to review the tender process.
The technical review, conducted by the European firm AF Consult, took more than a year to conclude its work. The consultancy initially advised that the technical team should not have issued the tender in three parts – a compelling argument at the time because Eskom was having problems integrating multiple contracts at its new Medupi power station.
The subcommittee then asked the technical team to invite both bidders to submit prices for a single integrated contract, but without reissuing the tender.
The board had apparently realised that there was no time to redo the tender if everything was to be in place for the 2018 deadline. But this is hard to reconcile with the subcommittee’s insistence on an external technical opinion that stalled the decision by a year.
The prospect of a single integrated contract also raised the stakes for Areva and Westinghouse: both bidders might have landed a slice of the three-part contract but it became a winner-takes-all scenario.
The technical team insisted that the tender specifications they had drafted never envisaged a single contract.
They showed the subcommittee an internal legal opinion that backed their position: the tender would have to be awarded in three parts or redone entirely.
The tender process risked descending into farce when the subcommittee obtained external legal opinion, by advocate Tshepo Sibeko, contradicting the technical team.
The subcommittee was advised that “the appointment of a single supplier was always contemplated in the [original] tender process” and that “there is nothing precluding Eskom from negotiating in parallel with both bidders”.
Soon afterwards, Eskom’s chief executive Brian Dames walked away from the utility after a 27-year career. It is understood that one of his many frustrations was the subcommittee’s intransigence over this contract.
Appointment fails to impress
Matjila, who had chaired the subcommittee that rejected the technical team’s recommendation, succeeded Dames as interim chief executive. It sparked howls of protest, because of damaging allegations about his conduct as chief executive of Cosatu’s investment arm, Kopano ke Matla.
As the interim chief executive, Matjila relinquished his position as the board subcommittee chairperson, to be replaced by Neo Lesela, but Matjila has continued to play a role in the tender saga.
Days after receiving Sibeko’s legal opinion, the subcommittee also received AF Consult’s final technical report. This dropped a bombshell, accusing the Eskom technical team of bias towards Westinghouse during the 2012-2013 tender process.
While the outraged technical experts were tied up trying to respond to these allegations – effectively neutralising them at a critical moment – the board’s tender committee instructed the acting commercial executive Matshela Koko to get the ball rolling on a competitive negotiation that would pit Areva against Westinghouse for a single consolidated contract.
Sidestepping a full tender process, a competitive negotiation is the equivalent of a sudden-death penalty shoot-out.
The South African law firm Binnington Copeland & Associates drew up the negotiating ground rules and Eskom asked a European association of nuclear utilities to recommend an expert to lead the negotiations. Enter Rudy Koenig, a veteran of the German nuclear industry.
No longer suspects
In mid-June, four days after Eskom formally invited Areva and Westinghouse to participate in the competitive negotiations, Matjila wrote to the technical team to inform them that they were no longer suspected of bias.
“Most anomalies are explainable and those that are inexplicable are due to a difference of opinion [between AF Consult and the technical team],” he said.
The competitive negotiation closed at the end of July. But, facing an impossible winner-takes-all choice at the end of a disastrous process, the board subcommittee now appears hesitant to reap what it sowed.
Although Eskom executives have privately expressed despair about the latest delays, Koko said the utility is “confident that the process we are following will result in procurement that is cost effective, competitive, fair, equitable and transparent”.
“We work within an extremely complex technical, financial, governance and regulatory framework,” he said.
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.