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Lionel Faull & Sam Sole
06 Nov 2014 00:00
Matshela Koko, acting group executive for Eskom’s technology and commercial portfolio. (Elizabeth Sejake/City Press)
The consultants who persuaded Eskom to appoint French nuclear company Areva for a contested multibillion-rand contract at Koeberg were themselves appointed under questionable circumstances.
The losing bidder, Westinghouse, is challenging the main contract award in court and this week brought contempt proceedings against Eskom for its failure to disclose documents relating to its decision.
The Swiss energy specialist, AF Consult, was brought in to advise the Eskom board tender committee in 2013, chaired at the time by Collin Matjila.
Documents disclosed in the court challenge show Westinghouse emerged from the tender process in August this year with neck-and-neck technical scores but were cheaper than Areva.
Matjila, who recently completed a controversy-dogged six-month stint as interim chief executive of the parastatal, endorsed AF Consult’s advice to consider extraneous factors that were not included in the original bid criteria, and this advice won the day.
Westinghouse argues this was improper.
AF Consult’s own appointment in 2013 appears to have been engineered at the expense of another company that bid at a lower price, and received a better technical score.
Arup, based in the United Kingdom, was already on Eskom’s recognised supplier database when the board tender committee decided in March last year that it needed “a technical advisory expert” to “assist and guide” it through a review of the Eskom technical team’s tender award recommendation.
Westinghouse was a front-runnerThe technical team favoured Westinghouse for the bulk of the three-part contract to replace the ageing steam generators at Koeberg.
The tender process had already dragged on since 2011 and the nuclear safety implications of the 30-year-old steam generators were giving Eskom executives sleepless nights.
Eskom’s own account of what happened next raises many questions.
According to Matshela Koko, acting group executive for Eskom’s technology and commercial portfolio, the utility issued a request for proposals to Arup and the other companies already on its supplier database, but also received undisclosed “business intelligence” that AF Consult was interested in bidding.
Although AF Consult was not a recognised supplier, Koko said Eskom issued it with a request for information and then took the information it provided and “aligned” it with the proposal Arup submitted.
At this point, Eskom evaluated both companies’ bids.
Although not disclosed by Koko, an internal Eskom source confirmed that Arup’s proposal was cheaper and received a higher technical score than AF Consult’s.
Despite this, Koko said Eskom appointed AF Consult as “an independent supplier using the sole source/mandate to negotiate and conclude mechanism”.
Behind the procurement jargon lies a startling admission: Eskom evaluated both bids and then, mid-way through, opted for a different tender method that considered AF Consult alone.
Rationale doesn’t make senseThe rationale is also strange because Eskom executives were desperate to finalise the contract so that long-overdue work could start, and yet a company that stood ready to do advisory work for Eskom as a registered supplier was dumped in favour of another that was not.
There is no indication that AF Consult did anything untoward but the process Eskom followed is questionable.
When confronted with amaBhungane’s understanding of Arup’s superior price and technical score, Koko clammed up.
“There have been averments made by Westinghouse attorneys around this issue and it is therefore now sub judice,” he said.
Koko also ignored specific questions about where the “business intelligence” about AF Consult’s interest emanated from, and which Eskom representatives took the decisions leading to AF Consult’s appointment.
He would only say: “The requirements … identified for this advisory team were that it had to have international exposure, nuclear experience and a sufficient degree of detachment from the South African nuclear environment.
“The … process followed … was deemed to be fair, transparent, reasonable, competitive and cost-effective.”
Successful bidder chosenAF Consult was appointed in April last year. The following month, the two AF consultants briefed Matjila and Suzanne Daniels, a senior manager.
According to minutes from this meeting, Matjila asked that he be given first sight of AF Consult’s draft report and meet with AF Consult to discuss it before presenting the final version to his board tender committee colleagues.
In its final report presented to the tender committee in July, AF Consult recommended that Eskom invite both companies to rebid for a single, combined, winner-takes-all contract.
The tender committee endorsed this proposal, and retained AF Consult to oversee the new evaluation process on their behalf.
An entire year’s delay ensued until, in July this year, both Areva and Westinghouse submitted their final offers.
Explaining the Eskom technical team’s evaluation of the bids to the board tender committee, Thava Govender, Eskom group executive for its generation division, wrote: “Westinghouse has emerged as the lowest-priced bidder, meeting Eskom’s key terms and conditions.”
With its localisation component included, Westinghouse’s bid was about R160-million better value than Areva’s.
Delays put project at riskThe bidders were equal on all other criteria but, because of the delay caused by the board tender committee’s hesitancy and AF Consult’s advice to redo the tender, Eskom was now at risk of missing its non-negotiable steam generator installation deadline of 2018.
Time was tight but Eskom’s technical team had concluded that “the schedule risk is the same for both suppliers”.
Govender’s submission recommended Westinghouse, but included an alternative recommendation for Areva.
The tender committee was unimpressed with this fudged recommendation and asked Govender and his colleagues to submit a single winner.
Subsequent to this, however, Matjila and Koko co-signed and submitted a separate and apparently unsolicited recommendation in favour of Areva.
As their submission makes clear, Matjila and Koko relied on AF Consult’s latest assessment of the just-concluded tender process.
“Whereas the negotiations have delivered an unambiguous result … the difference in price between the two bids alone does not cover these risks,” their submission said.
They flagged that AF Consult recommended that Eskom consider “strategic issues” instead – among them that, because the French built Koeberg originally, Areva was best placed to meet the tight installation deadline.
This advice appears to have swayed the award in Areva’s favour.
Westinghouse is arguing in its court papers that Eskom had “no additional discretion” to ignore Westinghouse’s better-priced offer, or to consider “other ‘strategic’ considerations which find no place in the publicised evaluation criteria”.
The Westinghouse case will be strengthened if it can also show the court that the company that gave this advice should not have been appointed in the first place.
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story.
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