NEWS ANALYSIS
Westinghouse, the aggrieved loser in a R4.1-billion tender to revamp the Koeberg nuclear power station, has lodged a damning high court application to set aside the award to French rival Areva.
The application, which is being contested by Eskom and Areva, details a series of interventions by key Eskom executives that Westinghouse alleges were used to drive the selection process towards Areva.
There is no suggestion of any impropriety on the part of the French nuclear energy giant, which has since signed the contract to replace the giant steam generators at the aging Cape Town plant.
Westinghouse alleges that Eskom acting chief executive Collin Matjila and acting group executive for technology and commercial Matshela Koko intervened in ways that suggested they were “intent on having the award made in favour of Areva”.
The Westinghouse application also shows how just three foreign consultants – in the one case briefed by Matjila and in the other case appointed by Koko – were inserted into the normal Eskom procurement process and proved decisive in the selection of Areva.
Eskom denies any wrongdoing and has until October 17 to file a formal response in court.
Koko said: “Eskom will not conduct a legal review through the media and it is confident that the courts will confirm that Eskom has acted within the prescribed procedures throughout the process.”
Given that the version of only one party has been tabled, the allegations must be treated with caution.
This is especially so because Westinghouse has backed away from key allegations made in an interdict application it launched at the end of August, shortly after the award to Areva was announced on August 15.
Process became vulnerable to manipulation
In the interdict, based on hearsay information from unnamed sources inside Eskom, Westinghouse suggested the Eskom board tender committee (BTC) had selected Westinghouse on August 12, but that committee chairperson Neo Lesela and Matjila had conveyed a different result to Public Enterprises Minister Lynne Brown when seeking her approval.
In his reply to the interdict, Koko refuted this scenario – and in the review application, now based on a considerable body of internal documentation Eskom has been obliged to disclose – Westinghouse has pertinently refrained from making any allegations about Lesela.
The same cannot be said for Matjila and Koko, and Eskom’s own documents paint a worrying picture of how vulnerable to manipulation the procurement process became.
The key deviation occurred in March 2013 when the tender committee, at the time chaired by Matjila, failed to deal with the Koeberg evaluation team’s submissions on the steam generator replacement owing to “insufficient time on the agenda”. This was despite the fact that the bids, submitted in 2012, were due to expire at the end of July 2013.
Instead, the tender committee resolved to engage AF Consult, a Swiss energy consulting firm, to “guide the committee on the technical evaluation of the bids”.
Westinghouse notes: “This is peculiar since Eskom is well resourced, with highly competent and qualified nuclear experts who are able to evaluate and advise on the tender process. It is unclear … what the rationale was for the appointment of AF Consult in [the] light of Eskom’s existing expertise.”
AF Consult, briefed by Matjila to report directly to him prior to delivering its findings to the tender committee, delivered its review on July 24. It found little wrong with the Koeberg evaluation team’s selection of Westinghouse for two out of the three components of the contract.
Westinghouse had been recommended to manage the fabrication of the six steam generator sets and for testing their functioning, and Areva to do the actual installation.
The documents show AF Consult criticised the 25-member Koeberg team’s exclusion of one of Areva’s proposed options, to use a Chinese subcontractor, which the Eskom experts considered more high-risk. AF Consult recommended that the two leading bidders be engaged in further negotiations over a consolidated, winner-takes-all contract.
‘Strategic considerations’
Even more crucially, AF Consult urged Eskom to adopt “strategic criteria for selection of a supplier”, including “building relations with countries that may provide services (equipment, expertise, financial support) for the new nuclear build”.
These “strategic considerations” were key to the committee’s later decision to reverse the preference for Westinghouse expressed by its own advisory body, the Exco procurement committee (Excops).
On March 24, 2014 Excops, made up of senior Eskom managers, delivered its verdict on the AF Consult recommendations. It rejected the proposal to consolidate the contract, saying it “cannot support the composite approach based on the risks articulated and the financial calculations set out in the submission”.
It proposed signing two of the three parts of the contract with Westinghouse and negotiating with both bidders for a final deal on the installation.
On March 28, Matjila was appointed acting chief executive, following the departure of Brian Dames. Almost immediately Matjila set up a new body, the Exco task team, to “take the process forward”.
Westinghouse states: “Its role was … not part of the official tender process yet it was anointed with the almost ominous task of assisting ‘from an interpretation viewpoint’.”
Part of this interpretation was to distribute a new legal opinion that contradicted two earlier legal views that suggested the consolidation of the contract might be impermissible.
The other issue the task team took up was the allegation originating from AF Consult that the Koeberg team “demonstrated bias during the evaluation process” in favour of Westinghouse.
Perhaps conveniently, this allowed the task team to recommend Eskom “negotiate with both suppliers on the composite offer with an independent team” that would exclude Eskom employees who were part of the previous evaluation.
‘No reason to make changes’
On May 19 the Koeberg team, which represented the actual end users, gave what appears to have been its final input.
The team confirmed the feedback by AF Consult was not substantive and there would be no changes to their original submission: “The Koeberg team saw no reason to make changes … The team was concerned about the unsubstantiated allegations that the Koeberg team was biased.”
AF Consult was later obliged to concede “there was no deliberate attempt to prefer one supplier over another” but by then the tender committee, now chaired by Lesela, had followed the lead of the task team and resolved that negotiations must be entered into with both bidders in respect of a combined contract.
It outsourced the framework for these negotiations to AF Consult, which would oversee the negotiations.
Koko also appointed another consultant, Rudi Koenig, to lead the negotiation process, which involved a new team from Eskom.
By July 22, Westinghouse and Areva were required to make their final commitments.
Changed direction
What happened next is still obscure, but some dramatic light is thrown by the minutes of the tender committee of July 31.
During the interdict application it was revealed that, following the final offers, Excops had submitted a document proposing Westinghouse, which had scored better overall, as the final choice for the consolidated contract. But it had included an alternative recommendation for Areva, based on “strategic considerations” and a view that Areva was less risky, given the tight deadlines generated by all the delays.
Now the minutes, previously withheld by Eskom, disclose that the recommendation was originally only for Westinghouse but that Koko, who was a member of Excops, “decided to include the second alternative”.
The minutes also show that Matjila and the consultants came out strongly in favour of an award to Areva.
The minutes reflect that the committee was not happy to assume the risk of making this choice and referred the matter back to Excops to come up with a single recommendation.
At this point Koko and Matjila –who was not a member of Excops – took it upon themselves to produce a consolidated recommendation in favour of Areva, which was tabled at the Excops meeting on August 6.
It is a measure of the unhappiness of the Eskom managers that, despite this pressure, their final report retained the recommendation for Westinghouse.
The managers noted: “These deliberations do not reference the advice of the external advisors to the BTC as this advice was provided to the BTC directly … and therefore Excops is not in a position to pronounce on the veracity of the advice provided.”
The Excops report again provided an alternative option for the tender committee to choose Areva, based on the external advice, which appears to be what happened – although the minutes of the final crucial meeting of the BTC on August 12 are still being withheld by Eskom.
Westinghouse argues that, instead of applying the bid criteria, extraneous factors took precedence: “Most notably, great reliance was placed on the ‘strategic considerations’ first posited by AF Consult in its report of July 2013 … This ultimately resulted in the tender being awarded to Areva. This taints the process as unfair and unlawful.”
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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.