How Eskom bent the rules

Johannesburg - In determining its intended R30m payout to Brian Molefe after he resigned as CEO, Eskom treated the calculation as if it were a retrenchment 

When returning Eskom CEO Brian Molefe stepped down in November last year, the power utility’s board accepted his resignation. However, it then tried to employ a rule usually reserved for people who get retrenched to secure Molefe an outsized payout, calling his resignation “early retirement”.

The DA has since launched a court application to block both Molefe’s R30 million pension payout and his return as CEO.

Public Enterprises Minister Lynne Brown initially rejected the payout in April on the basis that it was “lacking in legal rationale”.

It appears the Eskom board had set out to employ an Eskom Pension and Provident Fund rule that would legally permit it to pay him an inflated sum.

How did they plan to do it?

This week, Eskom board spokesperson Khulani Qoma still called Molefe’s departure “early retirement”, even though the provident fund rules offer this option only to people over the age of 55. Molefe is 50.

While the fund rules allow for a 50-year-old to leave with a topped-up pension, this applies only when they are retrenched.

Molefe’s pension payout was calculated under the rule for retrenchment, according to a media statement by Eskom’s provident fund.

In the midst of this conflation of resignation, retirement and retrenchment, timing was key.

READ: Molefe: Resigned, retired, retrenched, retained … which is it?

Molefe only turned 50 on December 26 last year, meaning his official resignation or retirement had to be postponed for almost two months after he announced it on November 11.

This could explain why he formally left Eskom on January 1 this year, even though Matshela Koko became acting CEO a month earlier, on December 1.

With Molefe now 50 years old and able to collect a retrenchment pension, Eskom was able to top it up spectacularly.

Rule 21 allows for Eskom to augment the pension of an employee at will, as long as it pays the amount over to the provident fund so that it doesn’t come at the cost of other pensioners.

In its statement, it was emphasised that Eskom itself, not the fund, determined the amount.

Molefe received a lump sum of roughly the legal limit of one-third – the R7 million he now has to repay – while the balance of the R30.1 million would have become a deferred pension.

Why R30.1 million?

Eskom and its provident fund both wash their hands of determining the quantum.

According to Qoma, the Eskom board “was not responsible for calculating the quantum”.

According to the fund, it merely actuarially calculated the cost based on a deal agreed to between Molefe and Eskom, with no input.

In other words, Eskom granted Molefe a certain amount of unserved years’ worth of pension and this happened to come to R30.1 million.

There are two theories about the deal.

Eskom chair Ben Ngubane told Fin24 this week that it had already been decided in 2015 when Molefe was hired.

According to Ngubane, the figure was based on what Molefe would hypothetically have accumulated as a pension if he worked at Eskom for 10 years.

That seems unlikely. If his salary of R7 million was increased by slightly more than inflation every year, his total salary over 10 years would come to around R100 million, giving pension savings of about R20 million at the 20.8% combined contribution rate at Eskom.

R30.1 million is, however, close to what Molefe would have earned in salaries if he served out the remainder of his five-year contract.

The DA’s case

The DA has asked the court for two orders - to block Molefe’s pension, as well as his reappointment.

This will likely force Eskom to reveal the rationale and legal basis of the pension calculation.

It also wants to block Molefe’s reappointment on the basis that he had resigned and that Eskom would have to go through an entirely new appointment process if it wanted to reappoint him.

The CEO job had already been advertised in March this year, the opposition party pointed out in court papers.

Molefe’s appointment raised governance, credit rating issues

Molefe’s rehiring could have an impact on the power utility’s governance and credit rating.

Parmi Natesan, executive at the Centre for Corporate Governance, Institute of Directors in Southern Africa, said that the public outcry against the decision taken to reinstate Molefe demonstrated how important transparency was to good corporate governance.

“It is difficult to see how Molefe can deliver on his mandate with the clouds of suspicion gathering,” Natesan said.

Business Leadership SA chairperson Jabu Mabuza said that efforts to convince investors and ratings agencies that the country was adhering to good governance, especially in respect of state-owned enterprises, had been undermined by rehiring Molefe.

Last month, Moody’s noted that, should corporate governance issues have an impact on Eskom’s market access, this would be negative for its rating.

Moody’s said that Eskom’s ability to raise funding could be “more challenging”.

Business opposes Molefe’s appointment

The Black Management Forum opposed the reappointment of Molefe.

“The process of finding a new CEO was still under way. What legitimate reasons on this reappoint will be given to the candidates who were subjected to the process? The board of Eskom has clearly breached its fiduciary duty.

“The Black Management Forum will seek a meeting with the leadership of Eskom to engage on this matter,” it said.

Business Unity SA CEO Tanya Cohen said her organisation was gravely concerned about the move and had requested a meeting with Brown to discuss it.

Business Leadership South Africa also condemned the reappointment. “Five separate reports, including the Public Protector’s State of Capture report, have found prima facie evidence of serious malfeasance at Eskom during Molefe’s tenure there,” it said.

The Black Business Council’s secretary-general, George Sebulela, said the organisation would not be commenting on the matter until they had met with the Eskom board.

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