Fallout from nuclear tender meltdown
The Supreme Court of Appeal this week slapped Eskom down over a disputed R5-billion nuclear tender, saying that “the whole process [was] irrational and unlawful”. The contract is to replace six ageing steam generators at the Koeberg nuclear power station whose overdue maintenance now threatens its safety.
Koeberg, on Cape Town’s doorstep, is a steady old workhorse in Eskom’s stable, churning out about 5% of the utility’s entire electricity supply.
With the concurrence of a full Bench, Judge Carole Lewis set aside the tender award and sent it back to Eskom “for reconsideration”.
Eskom’s board tender committee awarded the contract to French nuclear company Areva last year.
The ruling means that Eskom will have to deliberate on the “never-ending tender” for the fourth time since 2010. On each previous occasion, Eskom’s technical and executive teams had recommended Westinghouse, only to be overruled at either board or ministerial level.
The central issue in the court case, which Westinghouse brought against both Eskom and Areva, was whether Eskom’s board tender committee was right to take new “strategic considerations” into account at a late stage in the process, and award the tender to Areva.
It surfaced from court documents that both companies had neck-and-neck technical offerings, but Westinghouse’s bid was nearly R300-million less than Areva’s.
Notwithstanding some bitter wrangling among Eskom executives, the recommendation handed to the board tender committee was to award it to Westinghouse.
Then, in an unprecedented move, the five board tender committee members voted by secret ballot, which reportedly resulted in a 4-1 decision in Areva’s favour.
A board member at the time told amaBhungane that committee members had been placed under intolerable pressure to award the contract to Areva.
Court documents also reveal that, after Eskom’s executive tender committee had recommended Westinghouse, the utility’s then acting chief executive, Collin Matjila, and its then technology and commercial executive, Matshela Koko, had pushed for a counter-recommendation for Areva.
Following the secret ballot, the then board tender chairperson, Neo Lesela, and the board’s chairperson, Zola Tsotsi, wrote to Public Enterprises Minister Lynne Brown, outlining seven “strategic criteria”, which the committee had considered when it made its decision.
Brown told them she was satisfied with their decision.
But the appeal court found that each criterion was introduced after the tender criteria had already been set and were, therefore, inserted unlawfully into the process.
The court ruled that, “where an administrative body [such as Eskom’s board tender committee] takes into account considerations that are extraneous to the tender evaluation criteria, as set out in the invitation to bid, its decision to make the award is unlawful and procedurally unfair”.
It further ruled that, if Eskom still considers the strategic considerations it used to justify the award to Areva as crucial, then it should start the tender process again, with the considerations stated up front.
The court also awarded Westinghouse’s hefty legal bills to Eskom, which come on top of its own.
At the time of going to print, Eskom and Areva both said they were still studying the judgment and would comment in due course. In a brief statement, Westinghouse said it “welcomed” the judgment.
The department of public enterprises, responding to questions on Thursday, said: “Minister Lynne Brown has noted the decision of the Supreme Court of Appeal and is studying the judgment and its potential implications to Eskom and in particular the future of the security of electricity supply.
“In respect to all other issues raised, the minister would do a thorough analysis of the tender process that was undertaken as well as the relationship between Eskom, Dentons and Areva.
“With regard to the Dentons report relating to the investigation of the Eskom executives, the department did respond to the PAIA request submitted by M&G and minister is informed the request for the report is being handled between Eskom and M&G.”
Work has already begun, so what now?
The Supreme Court of Appeal ruling puts Eskom in a bind. Reissuing the tender from scratch would mean it would take about six months before it can be awarded.
But the maintenance work at Koeberg is already dangerously behind schedule, so the alternative to reissuing the tender could be for Eskom’s tender committees to review the original tender scores and recommendations. To comply with the court order, they would need to do so without introducing strategic considerations – a situation that would probably favour Westinghouse.
But there is now the added complication that Areva has already done 15 months’ work on replacement steam generators and would presumably sue Eskom for any breach of contract.
Areva told amaBhungane in September that it had “started with the forging operations to replace parts of the steam operators” and that “manufacturing operations [had] also started at Chinese subcontractors”.
Eskom might also consider extending an olive branch to Westinghouse by inviting them to perform some of the steam generator work at Koeberg – but this would require both nuclear vendors to give up what they might consider their legal right to the entire contract.
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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.