Eskom and treasury locked in multibillion-rand tender bunfight

The South African power grid is still unstable, and will be for some time. That reality means the economy will struggle to rebuild after the effects of Covid-19. This instability has spread to Eskom’s administration, which is stuck in a vicious fight between its board, chief executive André De Ruyter and the treasury. At the heart of this are allegations of irregular appointments, a fight with the national treasury over the cancellation of oil contracts and conflicts of interests. This situation has already seen one board member resign.    

This latest chapter of instability at the power utility started last year after a R14-billion tender was awarded to three companies — Econ Oil, Sasol, and FFS Refiners — to deliver fuel oil to Eskom’s power stations over five years.

De Ruyter wanted the multibillion-rand contract scrapped, saying that it was riddled with irregularities and price-fixing. The chief executive went to his old colleague from Sasol, Werner Mouton, a consultant, to investigate whether the companies that won the bid could possibly be involved in price-fixing. 

This is the same contract that Eskom, through a media statement on July 31, said it intended to cancel because of “irregularities”.

The Mail & Guardian has seen documents related to the debacle — including an independent report by advocate Wim Trengove into shocking allegations that De Ruyter misled the board when he asked for permission to cancel the tender. 

Old friends

Eskom hired Mouton on a three-month contract, which was not advertised, and was then extended for another three months. The treasury flagged this appointment, questioning why Mouton was appointed for three months if he were required to assess the reasonableness of one specific tender. The M&G was told De Ruyter handpicked Mouton.

A source close to the furore said the appointment of Mouton is “nepotism at its best. No advert was issued; he was just handpicked.”

The source continued: “André wanted any reason to cancel the bid, and now they do not have evidence to prove collusion. One reason may be to protect Sasol, and the other may be they are afraid to be sued if he cannot prove collusion.”

Both the treasury and the source said Eskom failed to report any alleged collusion that Mouton had found to the Competition Commission, as required by law. The treasury has since reported the collusion.  

It was Mouton’s report that found that there were pricing irregularities and possible price collusion between Econ Oil and Sasol. This was because Econ Oil’s price for the same oil was lower than Sasol’s — even though it bought its product from Sasol. The report also concluded that Eskom’s procurement team working on the bid was so hapless that it did not pick this up. Neither did it notice other anomalies.

De Ruyter took the review to the board and attempted to make the case that the R14-billion contract must be cancelled. He also added that, last year in January, the board had resolved to purchase fuel oil only from refineries because this was cheaper, and that the appointment of Econ Oil, which was awarded the majority of the contract, flew in the face of this decision, because the company was a reseller.  

Board member resigns

This was rejected by non-executive director Sifiso Dabengwa. He charged that De Ruyter was misleading the board about the resolution, and was using unsubstantiated allegations of price fixing, as well as untested allegations of fraud and corruption, to sway the board. He demanded an independent investigation of De Ruyter, and the board appointed Trengove to conduct it. 

Despite there not being any board submission or minutes bearing the resolution, Trengove found that De Ruyter’s claim that there was a board resolution “was, in all probability, correct”.

He states in his report that the so-called resolution had been referred to by other Eskom officials in official documentation before De Ruyter joined. He also found that De Ruyter’s statements that there were suspicions of collusion, fraud and corruption were justified and relevant, despite there not being any evidence at the time. 

However, the report makes no findings that there are grounds to cancel the R14-billion contract.

Trengove’s report, as well as its acceptance by eight of the 10 Eskom board members, led to Dabengwa resigning in anger and charging that the board was failing in its fiduciary duties.

The content of Trengove’s report reveals fissures and mistrust among the board that extend beyond Dabengwa. 

Eskom writes to treasury

Eskom had also written to the national treasury stating that it would cancel the contract. In the documents that the M&G possesses, is a letter from the treasury, rejecting the request. 

The treasury said the reasons given by Eskom, including those given by the consultant Mouton, to cancel the tender were not justifiable.

It said cancelling the award was not in line with regulations in the Preferential Procurement Policy Framework Act (PPPFA) of 2017, which requires permission from the national treasury, as well as a price assessment, before a tender is advertised.

It warned that “it is not clear” how the utility will defend itself “against [a] possible litigation process [by] service providers who have been awarded letters of award”. It also said it’s not clear why the collusion was not reported to the Competition Commission, “or why prices were not renegotiated with bidders”.

In a response on August 3, Eskom told the treasury it did not need its permission to cancel the tender, because the PPPFA regulations speak only to bids that are cancelled before being awarded. “National treasury does not, with respect, have jurisdiction to refuse Eskom’s decision to cancel the tender,” De Ruyter said in his letter to treasury chief procurement officer Estelle Setan.

He also said Eskom had an obligation to review its own decision, in court, if it discovers that the tender  was awarded unlawfully. 

This week Eskom spokesperson Sikonathi Mantshantsha said the company was due to approach the courts for a review and to set the contract aside. Mantshantsha, who would not comment on the other allegations, said Eskom would pursue civil litigation to recover money it thought was fraudulently obtained through the contract. 

“Many of these matters you are raising will soon be the subject of a court case, whose public ventilation ahead of that may prejudice Eskom’s case”.

No board concurrence

Amid all of the furore and resignations, De Ruyter has also had to explain himself to the board after Eskom announced the appointment of Mlawuli Manjingolo to the position of company secretary after the board had chosen Cheryl Singh. 

The board had taken exception that, instead of informing it that Singh had wanted a higher salary than the approved R3.3-million a year, De Ruyter appointed second-choice Manjingolo with no board concurrence. De Ruyter is also accused of hiring chief technology officer Faith Burn with a R500 000 sign-on bonus without the necessary board permissions in line with Eskom policy. Insiders have said that they have never heard of a sign-on fee at Eskom before.

Eskom said it would not speak about the details of employment of a staff member, because they are considered confidential, but the M&G has seen internal documents confirming that board concurrence for both positions was sought only after the hiring.

Mantshantsha also insisted that Mouton had been hired following a human resources process. 

On Burn, he said Eskom would not be drawn to comment on an individual’s employment contract, adding that the company did have a process in which it can pay a sign on bonus, and that “each case is treated on its own merit and must be approved by a sub-committee of the board.

Eskom remains convinced that  Econ Oil, a company owned by businesswoman and acting judge Nothemba Mlonzi, has been involved in corruption, including the overcharging Eskom by at least R500-million over the years. The M&G learned there are three different investigations that have uncovered malfeasance in more than R15-billion worth of supplier contracts given to the company from 2012. 

This included allegations contained in an incomplete investigation by law firm Bowmans Gilfillan that Mlonzi’s company has an untoward relationship with a former senior procurement official at Eskom who went on pension at the end of 2019 after a draft of the investigation was issued. The official was also found to have not declared her involvement in several other companies that did business with Eskom. 

In a previous M&G article, Mlonzi denied any impropriety and said her company was looking at a civil suit against Eskom because of all the allegations being made about its work. 

Sasol confirmed that it was approached by Eskom with regards to its relationship with Econ Oil, but insisted there was no impropriety. “Sasol is a responsible, law-abiding corporate citizen and legal compliance is one of our company’s core values. Accordingly, Sasol does not conduct business that amounts to collusion and fraud.”