Eskom flouted process for red-flagged Huarong loan

Eskom’s negotiations with China’s Huarong Energy Africa for a multibillion rand loan flouted the power utility’s procurement processes, the Zondo commission of inquiry into state capture heard on Monday.

During his testimony on Monday, Eskom treasury official Sincedile Shweni told the commission — chaired by Deputy Chief Justice Raymond Zondo — Eskom contravened procurement regulations that govern unsolicited loan bids.

According to Shweni’s testimony, Eskom embarked on negotiations with Huarong relating to a R25-billion loan before the bidding process had been concluded.

Shweni outlined the normal steps taken by the utility when dealing with an unsolicited bid. This includes rigorous vetting procedures and an open tender process known as a request for proposal (RFP).

Though Eskom embarked on the RFP process, it was eventually abandoned and Huarong’s proposal went unevaluated, Shweni told the commission.

Evidence leader advocate Thandi Norman SC probed Shweni on the fairness of the process, as Huarong had seemingly been favoured by Eskom.

Just a day after the RFP was issued, then Eskom chief financial officer Anoj Singh signed a binding term sheet with Huarong. A term sheet outlines the material terms and conditions of a business agreement.

READ MORE: Singh was undeterred by Huarong loan red flags — Eskom treasurer

The signing of the term sheet on March 14 2017 went against the advice of the legal team dealing with the transaction. Law firm White & Case warned against the signing of the term sheet because it included “onerous” binding terms on the power utility, including a R400-million commitment fee, and was ambiguous in what was being offered by Huarong.

On Monday, Shweni confirmed that it was unusual for term sheets to be signed at all.

In the lead-up to the RFP process, a delegation from Eskom — including Singh and Eskom treasurer Andre Pillay — had also travelled to Beijing and had met with Huarong executives to discuss the loan.

Shweni conceded that during the course of the RFP process, Huarong “had a bit of head start” because no other entities making proposals had been subject to the same consultations beforehand.

The RFP was ultimately abandoned and the Huarong proposal was taken out of the evaluation process.

According to Shweni, before the RFP had been officially closed Eskom embarked on further negotiations with Huarong. “This is in contravention of any normal procurement regulations,” Shweni said.

Eskom commenced negotiations with Huarong regarding the loan facility in late 2016. During his testimony last Friday, Pillay emphasised that he was uncomfortable with steps being taken seemingly to push through the deal prior to Eskom’s internal processes being followed.

The Huarong loan has been beset with controversy since it emerged that former executive Sean Maritz was implicated in a kickback scandal in which he was alleged to have signed off a R400-million payment from Eskom to an unknown Hong Kong bank account. Maritz was suspended in January 2018 and resigned a month later.

The matter is currently the subject of a Special Investigating Unit probe.

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Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.

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