How Eskom wasted billions while deviating from procurement guidelines

Medupi power station near Lephalale, in Limpopo, needs to be modified, meaning it will take longer to go fully online and there will be added costs. Load shedding will become a way of life, it seems. Picture: Lucky Nxumalo
Medupi power station near Lephalale, in Limpopo, needs to be modified, meaning it will take longer to go fully online and there will be added costs. Load shedding will become a way of life, it seems. Picture: Lucky Nxumalo

Eskom is the chief culprit among state-owned enterprises and departments when it comes to deviating from procurement guidelines and expanding the scope of its contracted work and as a result taxpayers have lost billions of rands.

This was according to Solly Tshitangano, a deputy director-general and acting chief procurement officer at Eskom as he delivered Eskom’s procurement report from 2005 to date before the portfolio committee on public enterprises on Wednesday.

Tshitangano detailed how most of the irregularities over the years “have emanated from the Medupi and Kusile power stations”, explaining that “most of the deviations and expansions process were as a result of emergency contracts, and single-source and sole-source transactions”.

He detailed shocking scenarios where the entity sought out three different service providers who then all worked on “similar plans” demonstrating how they would go about coordinating these mammoth engineering, procurement and construction feats.

According to Tshitangano this was notwithstanding the advice to the contrary that the utility had received “warning it that they would have to pay three entities for work that could have been done by one of the three suppliers”.

He added that the ailing power utility has to end up paying R100 million to all three service providers when, at the end of the day, they ended up going with one service provider.

Tshitangano also fingered Eskom Rotek Industries and Mitsubishi Hitachi Power Systems Africa as being, among others, some of the entities that bled Eskom dry during the continuing construction of the two power plants.

The biggest construction headaches faced by the entity were caused by the installation of deficient boilers supplied by Mitsubishi Hitachi Power Systems Africa, according to Eskom.

Eskom Rotek Industries – a wholly Eskom-owned subsidiary – was appointed to establish the Kusile site, a process that entailed digging drains, laying pipes and doing the earthworks and terracing.

Its contract was terminated early on because it was unable to deliver.

That created a bottleneck for other contractors, who filed for damages.

Eskom said it has paid out R14.8 billion to settle the claims, which totaled R252.9 billion, and it filed claims of its own worth R2.6 billion against companies that failed to meet their contracts.

The biggest construction headaches faced by the entity were caused by the installation of deficient boilers supplied by Mitsubishi Hitachi Power Systems Africa, according to Eskom.

In 2014, Hitachi Power Africa, an earlier iteration of the company, blamed local subcontractors for faulty welds on the Medupi boilers, but Eskom has since placed the blame squarely on the company given that they were the main contractors.

Parliamentarians present during the presentation questioned how such gross irregularities were not flagged by either the internal auditors or as a last resort external auditors.

Eskom chairperson Professor Malegapuru Makgoba, who was also present at the meetings, said “this was during a time of grave state capture and the individuals involved were determined in their quest to loot the entity”.

These revelations come on the back of the announcement by Statistics SA that South Africa is in a technical recession after the country’s gross domestic product (GDP) contracted by 1.4% in the fourth quarter of 2019 and Eskom’s unreliability was fingered as the major culprit.

Eskom has already warned South Africans to expect power cuts for the next 18 months as it works to stabilise its operations.


Juniour Khumalo
Journalist
City Press
p:+27 (0) 11 713 9001
w:www.citypress.co.za  e: juniour.khumalo@citypress.co.za
      
 
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