In the 2017 financial year Eskom not only gave its now fired chief executive Brian Molefe and current, embattled chief financial officer Anoj Singh hefty increases, it also backdated long-term incentive awards in a way that would see them profit handsomely come 2018.
Molefe has lost out on those long-term rewards by being fired. If he succeeds in having his firing overturned by the high court in Pretoria, however, he could be back in the money. If so, he and Singh between them could ultimately earn as much as a combined R27-million for their year at work (or for nine months at work in the case of Molefe, who contends he was on unpaid leave for three months while serving as a member of Parliament).
In the 2016 financial year the two earned R14-million from Eskom, making for a combined increase of 92% in its most recent year.
The raise was not effected by hiking up Molefe and Singh’s salaries, but was engineered largely through a “share scheme” run by Eskom for the benefit of its top executives.
In effect the “share scheme” works by creating fictional bank accounts for each executive and depositing a set amount of money into those accounts at the beginning of the financial year, where the money earns interest. At the end of a three-year period each executive is paid a percentage of the resulting sum, depending on how well Eskom has performed on targets set in its corporate plan and its compact with the government. For the money maturing in 2018 Eskom currently expects the award rate to be 50%.
On April 1 2015, the beginning of its financial year, Eskom made such notional deposits for its top executives. Molefe only joined the company on April 20 of that year, and Singh on August 1. Nonetheless each received a healthy deposit, R7.5‑million for Molefe and R3.9‑million for Singh, each treated as if they were made at the beginning of the financial year and had earned interest accordingly. They could expect a payment of a portion of that, realistically about 50%, in June 2018, provided that they remain in Eskom’s employ until then.
Sometime during the course of 2016, however, Eskom came to the conclusion that the incentives were not sufficient. So, for reasons not yet disclosed, it “revised and backdated” the deposits, adding R3.2-million to Molefe’s account and R2.6-million to that of Singh.
Eskom disclosed the additional incentives only in footnotes, in tiny type, more than 100 pages into the annual financial statements appended to its annual report.
No other executives’ accounts were revised.
A smaller part of the two executives’ increases came in the form of “other payments” made to them during the year. These were for what Eskom’s books describe only as “fees related to telephone costs, security services and operating vehicle expenditure”. In the 2017 financial year Eskom paid Molefe and Singh a combined R1.2-million under this heading, on top of their salaries. In the previous financial year their combined payment was R35 000.
On Wednesday Singh said he was not aware of the increase in these payments but he “can look into it”.
He also promised to release a document he is preparing that would explain leaked emails showing he was a regular guest of the Gupta family in Dubai, at their expense, while the family was doing business with his then employer Transnet.
Molefe has likewise previously promised to explain why he had regularly visited the area of the Gupta family compound and phoned members of the family and their associates many times while Gupta companies were negotiating with Eskom. He has never done so.
New ‘facts’, few clear truths on Eskom
Eskom has, for the first time, confirmed that it had paid the Gupta-linked advisory firm Trillian R495-million. Until Wednesday it had denied that it had done any business or made any payments to the company.
The reason Eskom had previously made that denial may have had something to do with the nature of the contract, or lack thereof, with Trillian, said recently installed board chairperson Zethembe Khoza.
“We do not have a contract with Trillian ourselves; it was a subcontract for [internal advisory firm] McKinsey, so if you were searching using the contract you could not pick up any payments,” Khoza said.
McKinsey quickly disputed this version of events, issuing a statement to say it had never subcontracted Trillian (despite a letter that said otherwise) and adding that Eskom knew as much.
McKinsey also disputed that it had been suspended from working for Eskom by Johnny Dladla, as the interim Eskom chief executive had claimed.
“We mutually agreed to suspend our work with Eskom,” McKinsey said.
There was similar confusion about a recent arbitration award in favour of Eskom against the Gupta-controlled Tegeta, which sells coal to Eskom. When Tegeta acquired Eskom supplier Optimum, former Eskom chief executive Brian Molefe insisted, vehemently and consistently, that Eskom would not forgive Optimum the R2.1-billion fine due for delivering substandard coal. Eskom’s refusal to compromise on this had apparently been a major factor leading to the sale.
On Wednesday Eskom said it had accepted a R577-million arbitration award, a reduction of 73% in the fine.
The company would not disclose details, but insiders have suggested Eskom started to reduce its claimed amount well before the arbitration process began and conceded ground in a fashion one described as “enthusiastic”.
Eskom had previously claimed it could not reveal the amount without Tegeta’s consent.
On Wednesday Khoza said Eskom had decided to reveal the number “in the interests of openness”, even though it was revealed by Business Day nearly a month earlier.
Eskom chief financial officer Anoj Singh then explained that the reduction in the fine had been, in large part, because a change in coal sampling equipment in 2010 had caused “false positive” results. For reasons he did not explain this technical error was not discovered during several years of investigations and claims, but was identified after the Gupta family became responsible for the debt.
Eskom’s ‘share’ scheme in the balance
Eskom’s convoluted long-term incentive scheme for its top executives could see chief financial officer Anoj Singh paid as much as R6.5-million next year. If Brian Molefe returns as the company’s chief executive, he stands to earn a maximum of R10.7‑million from the scheme.
But Molefe’s controversial, reversed pension payout could also see both get nothing.
In terms of the rules of the scheme, executives are paid out depending on the level to which Eskom achieves certain financial results; hard numbers that are closely monitored. But the scheme also gives the Eskom board discretion to “adjust” the payments depending on what the company has previously described as “gatekeeper conditions”.
The description of these conditions was left out of Eskom’s 2017 annual financial statements released on Wednesday. But in the 2016 annual financial statements (which are, in other respects, nearly identical to this year’s edition), Eskom said the conditions can be triggered by a qualified audit, and by “a significant PFMA contravention”, referring to the Public Finance Management Act.
The farcical sequence of events that started in December 2016, and during which Eskom attempted to pay Molefe an irregular R30-million pension, caused both a qualification of its audit and represented irregular spending under the PFMA.
On Wednesday Eskom confirmed that its pension fund, which operates at arm’s length from the utility, has refused to pay Eskom back the R30-million, which Eskom had paid over to the fund to channel to Molefe, without a court order to do so.