Billions wasted: Eskom’s suppliers and former executives must testify at Zondo commission

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Kusile is a coal-fired power station close to the existing Kendal power station in the Delmas municipal area of the Mpumalanga province. Picture: Herman Verwey/City Press
Kusile is a coal-fired power station close to the existing Kendal power station in the Delmas municipal area of the Mpumalanga province. Picture: Herman Verwey/City Press

As the details of how Eskom was looted and how deep the rot there is begins to unravel, it is refreshing to know that the new Eskom board and executive management are quite serious about accountability.

This week a concerned board member showed City Press correspondence which suggests that his colleague Sifiso Debengwa and Eskom chief executive Phakamani Radebe are demanding answers from Jan Oberholzer for the Black and Veatch contract.

In 2008 Oberholzer signed an open-ended contract with Black and Veatch, an American firm of consulting engineers which designed the badly flawed Kusile Power Station, giving the company a blank cheque to charge whatever it wanted to charge.

Read: R13bn Eskom bonanza for US firm

Despite the sloppy workmanship, by the end of 2017 Eskom had paid Black and Veatch about R12 billion.

Oberholzer’s contract also inexplicably committed Eskom to paying Black and Veatch 15% advance payment for every worker order.

Not only are advance payments forbidden by the Public Finance Management Act, but they are also unheard of for consultants involved in construction projects.

Fifteen percent of R12 billion is R1.8 billion.

The R1.8 billion which Eskom paid to Black and Veatch in advance fees makes the infamous R659 million prepayments the power utility advanced to Tegeta for the supply of coal look like small change.

Considering what has happened at Eskom since the first and historic round of load shedding in 2008, the board’s decision to demand answers – which it may or may not act upon – from Oberholzer is hopelessly not enough.

Electricity is at the centre of the economy and is a key driver of development, and all South Africans deserve to know what happened.

As such, Oberholzer has to appear before the Zondo Commission of Inquiry and give testimony on the role he may have, wittingly or unwittingly, played in the capture of Eskom.

Oberholzer has to explain to the commission, and in extension to South Africans, how he arrived at the decision to commit Eskom to pay Black and Veatch advance payments.

He also has to explain why Black and Veatch was given a blank cheque with no limits.

Eskom’s own internal documents show that in August 2007 Black and Veatch’s consulting fees for Kusile were estimated at R1.7 billion.

Granted, few if any construction projects are ever finished on time and on budget.

Add costs overruns, contingencies inflation and construction delays, the R1.7 billion could have easily tripled, meaning the final figure would have arrived at around R6 billion.

An explanation on how Black and Veatch was paid north of R12 billion, with no single approval from the Eskom board, is necessary.

Eskom cannot commit anything north of R750 million without approval from the board.

At the moment, there is no indication that the R12 billion paid to Black and Veatch had been approved by the board.

If Oberholzer is not willing to testify out of his own volition, deputy Chief Justice Raymond Zondo should invoke his powers and compel him to give testimony.

In fairness to Oberholzer, he is not the only person that should appear before the Zondo Commission. Eskom is in a bad shape and many people and companies have played a role in getting the parastatal where it is.

Others who should approach the commission or be compelled to do so include former chief executives Jacob Maroga, who was at the helm during Eskom’s first round of load shedding in 2008; Brian Dames, Mpho Makwana, Collin Matjila, Tshediso Matona, Brian Molefe, Matshela Koko and Sean Maritz.

All executives who served Eskom as business unit heads, chief financial officers and chairmen over the last decade should also set up appointments with the commission.

Equally, local and multinational companies which received tenders worth over R20 million from Eskom in the last decade should testify.

Some of the companies which come to mind include: Black and Veatch, Carab Technologies, Bureau Veritas South Africa, ABB South Africa, Actom, Zest Electric Motors, Turbine, Siemens, Universal Coal Development, Landis and GYR, Ircon International, Consolidated Power Projects, Econ Oil and Energy, FFS Refineries, Vunene Mining, Aveng Africa, Idwala Holdings, Mitsubishi Hitachi Power Systems Africa, Time Data Sequel and Lephalale Site Service.

Read: Eskom’s massive coal contract splurge

City Press is not accusing the executives or companies mentioned above of any corruption.

But these executives led Eskom at times during which staggering corruption took place.

Equally, the companies received contracts worth hundreds of billions.

Both the executives and the companies may have interesting things to tell the commission about how Eskom was captured and destroyed.

It is critical that this is done as it will be close to impossible to bring Eskom back to the straight and narrow until we get to the bottom of how, in a few years, Eskom managed to regress from posting profits worth billions to amassing debt worth over R400 billion, and now also depends on government bailouts and guarantees.

If Eskom’s corruption is not unravelled, South Africans who are already paying a heavy price for the corruption there, will continue to subsidise graft at the power utility.

As it is, South Africans are underwriting the tab for Eskom’s corruption through above-inflation annual electricity tariff increases and through bailouts from National Treasury.

While Eskom is broke and insolvent, the primary issue there is mismanagement.

Throwing money at Eskom, through charging South Africans exorbitant electricity prices and through relief and aid from Treasury, is like pouring water into a sieve.

This is also the main reason why breaking Eskom into three components, as envisaged by President Cyril Ramaphosa, will not work, at least not until there is a thorough grasp of what happened at Eskom and measures are set up to prevent the same from happening again in future.

If Eskom is broken into three companies without addressing the underlying issues, the crooks will simply mutate and resurface in some or all of Eskom’s envisaged entities.

It is also for the same reasons that the Eskom board’s decision to decentralise powers, including procurement decisions, to power station managers will not end well.

Almost a decade ago Eskom had a system in which powers were devolved to power stations.

But the system didn’t work. Corruption was uncontrollable and management back then decided to centralise powers.

Of course, there is an argument to be made that Eskom’s near total collapse happened under a centralised decision-making system.

I would argue that with the right checks and balances, a centralised decision-making system is much better than a decentralised system.

Eskom’s executive management probably has sound reasons why decentralising power is a good decision, but for reasons that should be obvious to everyone, leaving power station managers to their own devices, at least as far as procurement is concerned, is not likely to yield positive results.


Sipho Masondo
Journalist
City Press
p:+27 11 713 9001
w:www.citypress.co.za  e: sipho.masondo@citypress.co.za
      
 
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