Eskom scrapped a tender that would have saved R1-billion
Executive meddling has led to Eskom canning a tender the cash-strapped utility had hoped would save it almost R1-billion in information technology (IT) costs. Instead, it retained the original, “overpriced” service provider.
Much of the blame has been laid at the feet of the former acting chief executive, Collin Matjila, who is accused of interfering in the tender from the moment he took office a year ago. His short tenure was marred by repeated meddling in procurements.
Collin Matjila (Hanlie Konig and Simphiwe Mbokazi)
This key contract, worth R2.5-billion over the past five years, was for all of Eskom’s IT support.
Eskom executives have told amaBhungane that meddling in the utility’s commercial division, which is responsible for all procurement, is costing it billions in failed projects and lost opportunities.
The government will inject R23-billion into Eskom this year, but the utility’s debt was R265-billion, according to its last financial statements.
The German multinational, T-Systems, inherited the IT contract when it bought the state-owned IT company Arivia.kom in 2010.
But several Eskom sources described T-Systems’ performance as poor.
One said its service was “terrible” and “cost Eskom a fortune”. Even a T-Systems insider confirmed that the relationship had been “really rocky”. “Eskom told us many times what we needed to fix, but we didn’t,” the insider said.
But T-Systems said in a statement this week it had “consistently improved service quality since 2010, resulting in a 99%-plus service level achievements during the latter part of the initial term, at market related prices”.
Matjila did not respond to detailed questions.
The T-Systems contract was due to expire in December last year. Eighteen months before that, in June 2013, Eskom’s chief information officer, Sal Laher, proposed that the utility could save about R900-million if it moved core IT work in-house, and put out a tender for non core work.
Laher said Eskom should use the time during the remainder of T-Systems’ contract to advertise a tender and secure a better deal.
At that stage, Matjila was a board member but chaired the board’s crucial tender subcommittee, which has the final say on procurement decisions.
This committee unanimously approved the IT procurement plan in August 2013.
A source who attended the meeting said Matjila appeared delighted with the plan.
Eskom issued a request for proposals in December 2013 and 11 companies, including T-Systems, made a bid for the tender.
Top bidders shortlisted
When Matjila took over as acting chief executive in April last year, the bids had been evaluated and three candidates shortlisted. Eskom’s executive procurement committee approved the shortlist and gave the IT division permission to negotiate – but not to conclude – a deal.
One step remained: the board tender committee needed to endorse the executive committee’s recommendation to negotiate.
T-Systems was not among the shortlisted bidders and faced the prospect of losing its biggest contract in South Africa. If that had happened, a T-Systems manager told amaBhungane, two-thirds of its staff would have faced retrenchment.
Meanwhile, early in 2014, T-Systems received a boost from Transnet, which awarded it a similar, although less lucrative, IT tender.
T-Systems made the bid for the Transnet contract as part of a consortium with state IT infrastructure company, Broadband Infraco.
A T-Systems source said, while working with Infraco, T-Systems executives became acquainted with Salim Essa, an Infraco director.
Salim Essa (Hanlie Konig and Simphiwe Mbokazi)
Essa is a flamboyant businessperson, with wide-ranging business interests, who apparently loves to invite colleagues for cigars at his Melrose Arch offices after sealing a deal.
His associates include the Gupta family and Duduzane Zuma, his partners in an engineering firm that manufactures steel components intended for, among others, Transnet locomotives.
Essa’s wife is also a co-shareholder with the Guptas and Zuma in the mining company, Shiva Uranium.
Another of Essa’s associates is none other than Matjila, whom he advised about deals entered into by Kopano ke Matla when Matjila was its chief executive. Kopano is the trade union federation Cosatu’s investment arm.
Another T-Systems source said, when it became clear that T-Systems risked losing the Eskom deal, Essa approached it and offered to help lobby Eskom to retain the contract. Essa “wiggled his tits”, the source said, offering to lobby for T-Systems.
In return, said the source, Essa requested a fee.
Board not charmed by Essa
The source said the approach was discussed by management, but was “never consummated” because of opposition by the T-Systems board.
The first T-Systems source confirmed hearing about Essa’s approach through the company’s grapevine, although the source claimed to have no direct knowledge of it.
Essa did not respond to SMSes, an email and calls to his offices.
T-Systems, in its response, ignored questions about Essa and said only that it was “confident that due process has been followed”.
It is unclear if Essa did lobby Eskom on T-Systems’ behalf.
However, several of the sources said T-Systems submitted unsolicited offers, mainly discounted prices, to Eskom at various stages of the process, apparently in the hope that a sufficiently attractive offer would persuade the utility to retain it for the two-year extension period.
As soon as Matjila occupied the Eskom hot seat in April last year, a senior Eskom executive said he did a complete flip-flop on his earlier unequivocal support for the IT tender.
A T-Systems insider also said relations with Eskom changed after Matjila’s arrival and T-Systems soon had his ear.
Executives meet Matjila
“[Previous Eskom chief executive] Brian Dames hated us, but I know of at least two meetings where our top executives were able to meet Matjila after he became CEO. This was a big change,” the T-Systems insider said.
An Eskom source said Matjila immediately asked for the IT contract to be removed from the tender subcommittee’s April meeting agenda, “because he didn’t believe the cost-saving of R1-billion was correct”.
“This was strange because he had chaired the tender subcommittee the previous August when it unanimously approved a decision based on those savings calculations,” the source said.
The contract was again removed from the agenda the following month.
Meanwhile, Matjila requested an internal audit of the tender cost estimates. The findings, presented to Matjila in May, concluded that the savings were “reasonably calculated” with a “high possibility” of being correct.
Audits and delays
The source said “audit after audit” then followed, adding delay to delay, as Matjila queried one aspect of the tender after another and commissioned external auditors to interrogate each one.
Matjila did not respond to calls and SMSes sent this week to a cellphone number his wife confirmed was his.
According to another insider, Laher took the contract to the audit and risk subcommittee of the board in July last year, warning it that further delays would jeopardise the guaranteed savings commitments Eskom had secured from the three shortlisted bidders.
The insider said two committee members met Matjila to hear his concerns.
“Matjila was unable to offer a single tangible reason for why the contract should not proceed,” said the insider.
Instructions to suspend
Next, Matjila summoned Laher’s boss, Erica Johnson, and demanded that she suspend Laher on six charges. This was independently confirmed by three Eskom sources.
“The charges were ludicrously trumped up,” said a source sympathetic to Laher, “and Johnson immediately showed this was the case. Laher was cleared.”
Johnson, who has left Eskom, declined to comment.
As acrimony boiled, a heated executive committee procurement committee meeting in September resolved to re-audit the cost savings estimate.
The audit finding – which amaBhungane has seen – “guaranteed Eskom a R966-million saving on the new IT contract”.
Matjila’s stint as interim chief executive finished at the end of September and was succeeded by a permanent appointee, Tshediso Matona, who was later suspended.
Matjila close to procurement process
An executive colleague of Matjila’s commented: “In all my years at Eskom, none of the previous chief executives would ever come near procurement the way Matjila did, because it’s a matter of integrity.”
The IT contract was finally tabled at the tender subcommittee in late October – six months after the intended date.
Furious board members demanded to know why the openly squabbling Eskom executives had brought a complex contract to them just two months before T-Systems’ contract was due to end. Some board members also knew of the many audits that had slowed the process, and the subcommittee resolved to investigate the delay.
But it also mandated Eskom’s IT division to negotiate with the shortlisted bidders.
On October 31, Laher sent T-Systems a letter formally dispensing with its services.
This apparently sent shockwaves through T-Systems and staff morale plummeted.
T-Systems managing director Gert Schoonbee met Matona and apparently “conveyed unhappiness” about losing the bid.
Gert Schoonbee (Hanlie Konig and Simphiwe Mbokazi)
In mid-November, as the debilitating wave of load-shedding began, senior Eskom decision-makers began to question the wisdom of moving to a new IT service provider at such a precarious time.
Laher was then suspended. Although the allegations against him have not been disclosed, it is understood they are different from those Matjila made several months previously.
Although a source broadly sympathetic to Matjila claims Laher overstepped the mark on “other matters”, Laher’s allies at Eskom believe he was suspended “on spurious grounds to get him out of the way” of the IT contract.
A new board met in January this year and decided to retain T-Systems.
ITWeb reported that the three shortlisted bidders – Dimension Data, Wipro and HCL – received letters on April 1 informing them the tender had been cancelled.
Laher’s suspension was lifted the following week and he briefly returned to work before reaching a settlement and resigning.
He declined to be interviewed, saying: “I want to have nothing to do with, or to say anything about Eskom. I am bound by the confidentiality clauses in my settlement.”
But it appears that at least part of Laher’s 2013 strategy has come to pass, although it is unclear how much Eskom has been able to save. T-Systems said “a large part of the services provided by T-Systems during the initial term [2010-2014] were insourced by Eskom in December [last year], resulting in a number of T-Systems employees becoming Eskom employees”.
Although this implies that Eskom now pays T-Systems less, it also means that Eskom has assumed a bigger wage bill.
T-Systems did not say it had offered Eskom any discount on the work it retained, only that “Eskom requested that the remainder of the services would continue to be delivered by T-Systems as part of the ‘disengagement process’ defined in the contract”.
AmaBhungane understands the disengagement process refers to the two-year extension period, although T-Systems said they were “still in negotiations” with Eskom.
The utility said “savings are being realised” with T-Systems, but did not provide figures.
Eskom also said it followed “strict” procurement processes, adding that it was “highly unlikely that any individual or group of individuals could influence the awarding of contracts”.
* Got a tip-off for us about this story? Click here.
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.