Eskom’s auditors have warned that the R43-million deal to sponsor the New Age business breakfasts is “a reportable irregularity” in the utility’s interim financial results released on Tuesday. Some Eskom board members tried to keep the auditor’s warning out of the public domain this week.
AmaBhungane first exposed the contentious contract last month, including allegations that former interim chief executive Collin Matjila had disregarded internal legal advice and allegedly approved the budget-busting sponsorship deal without having the authority to do so.
In the context of Eskom’s troubled financial situation, this could be the most egregious example to date of a state-owned enterprise’s funds being diverted to prop up the New Age, a newspaper regarded as government-friendly. The politically connected Gupta family owns the New Age newspaper.
AmaBhungane revealed that Matjila is close to them through deals and mutual associates they shared when Matjila was chief executive of trade union federation Cosatu’s investment company Kopano ke Matla.
Eskom board members who have been pushing for Matjila’s censure are understood to have resisted a last-ditch attempt this week by other board members to prevent the irregularity being disclosed in the interim financial statements.
A reportable irregularity
The external auditor’s review statement accompanying Eskom’s interim financials confirms that “we have reason to believe that certain alleged unlawful acts or omissions have been committed by a member of the accounting authority of Eskom, which constitute a reportable irregularity”.
The board statement expands on the auditor’s disclosure, saying that “the alleged irregularity relates to the conclusion of a sponsorship contract amounting to R43-million by a member of the accounting authority contrary to the group’s delegation of authority applicable to that contract”.
The “member of the accounting authority” is understood to be Matjila, who is believed not to have had the authority to approve a contract valued at R43-million, but did so anyway.
According to Eskom’s delegation of authority, all procurement of goods above R5-million requires approval by a tender committee.
It is unclear why Matjila was willing to risk approving such a contract; amaBhungane understands he did so against the express advice of Eskom’s internal legal department. An Eskom executive had previously told amaBhungane the contract had obliterated Eskom’s sponsorship budget.
Power utility financially unstable
As Eskom’s interim results revealed this week, the utility is in a precarious financial position. It received a R20-billion financial support package from government last month, and will in all likelihood apply for increased electricity tariffs next year.
Business Day reported this week that the utility hoped to reduce its costs by asking staff to apply for voluntary severance packages.
Eskom now routinely urges its domestic users to “live lightly” by reducing their electricity consumption to avoid nationwide blackouts.
Gupta spokesperson Gary Naidoo has previously dismissed amaBhungane questions about the Eskom sponsorship as “an attempt by yourselves to cast doubt on our successful business strategies … to ensure that an independent entrant does not gain further traction in a very competitive market and therefore take some share from yourselves”.
This week, Naidoo said he stood by his previous statement. “The New Age concluded a legally correct and binding contract with Eskom regarding the sponsorship of its business briefings. We are not in a position to comment on the internal processes at Eskom.”
AmaBhungane has previously reported how Matjila’s alleged flouting of corporate good governance on this contract caused such dismay at board level that the chair of its audit and risk subcommittee, Bajabulile Luthuli, reported the matter in person to Public Enterprises Minister Lynne Brown.
Luthuli’s committee subsequently launched an internal investigation and an external audit into the contract.
A board divided
Matjila is back on the board, having completed six months as interim chief executive at the end of September. Permanent appointee Tshediso Matona succeeded him.
On Friday last week, Eskom’s auditors SizweNtsalubaGobodo reported the irregularity to the Independent Regulatory Board for Auditors, as required by law.
Two senior Eskom sources told amaBhungane independently that Eskom board members were divided about whether the auditor’s opinion should be made public in this week’s interim financial statements.
The sources said that Luthuli and two of her audit and risk subcommittee colleagues had resisted last-minute pressure from board members sympathetic to Matjila to exclude the auditor’s warning statement from the financial results.
According to the sources, board members held meetings at Eskom’s Megawatt Park headquarters on Sunday and Monday night this week to discuss the issue.
Luthuli and her audit committee colleagues’ view prevailed in the end, if only because the board had no other option. The company’s auditors are obliged by law to report any irregularity in their review of the financial statements.
The statements were finally signed off late on Monday night and made public on Tuesday.
The board statement added that it is still “considering the findings of the [auditor’s] review” and that “to date no payment has been effected against this contract”.
Luthuli declined to comment, saying the matter was “still under board consideration”.
Eskom board chairperson Zola Tsotsi, who is understood to have motivated against disclosing the irregularity, did not respond to calls and an SMS.
30 days to contemplate irregularity
Having reported the irregularity to the Independent Regulatory Board for Auditors, the law gives Eskom’s auditors 30 days to discuss the irregularity with the board and allow board members to ”make representations”.
The auditors will then submit a final report to the regulatory board, which can in turn take further action. The board’s audit and risk committee could take other steps against Matjila, such as reporting his conduct to the Institute of Directors in Southern Africa.
Eskom said: “The matter that [you are] referring to has not been concluded. Once concluded Eskom will decide on how to handle it.”
Matjila is no stranger to corporate controversy, having been embroiled in a pension fund administration scandal when he was chief executive of Kopano ke Matla.
His appointment as interim chief executive of Eskom caused a public outcry, and he resigned from his Kopano position within days.
Matjila has also been prominently cited in court papers filed by nuclear company Westinghouse, alleging that he played a key role in Eskom’s appointment of rival nuclear company Areva for a R4-billion maintenance contract at Koeberg.
Westinghouse lost out to Areva, despite being recommended for the award by Eskom’s technical team. Westinghouse wants the tender award reviewed, whereas Eskom is opposing them. Matjila did not respond to calls and SMSes.
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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.