WRAP | ABB South Africa to repay Eskom R1.56 billion

ABB South Africa has reached an agreement with Eskom and the Special Investigating Unit (SIU) to repay the power utility R1.56 billion.

This is related to overpayments made by Eskom to the contractor for work done at Kusile power station.

The SIU has said this is the largest recovery it has made since it started reviewing contracts at the power utility.

Public Enterprises Minister Pravin Gordhan has said there are tens of billions more to be recovered from irregular contracts with state-owned enterprises.

Gordhan says that the issues with the tender system do not solely lie with Eskom. It is also related to the private companies seeking to exploit weaknesses in the tender process or manipulate the system.

He said it is time for the business culture- values and ethics to be reviewed.

Gordhan says that eventually, tens of billions might have to be recovered.

Gordhan says this is a major advance and signal to culprits in malfeasance and corruption - that it is possible to track people down and recover funds.

Gordhan says it is important to start tracking down patronage networks and those benefiting of them.

De Ruyter expects Nersa to deduct the recoveries from its efficient costs. 

Eskom says in its applications to Nersa- it indicates that it wants to be compensated in tariffs for efficiently incurred costs.

Where there are excessive costs- attached to corruption and inefficiency - Eskom management will account for it.

Over the past 10 years - there has been a cumulative revenue gap of R300bn.

A deduction of this type of settlement is unlikely to change the case for higher and cost-reflective tariffs.

De Ruyter says Eskom may have to rebuild from the ground up to ensure transparent procurement.

De Ruyter says its net debt is at R424 billion.

This settlement gives a signal to contractors and suppliers that they will be held to account for overcharging.

That principle will allow Eskom to negotiate better commercial outcomes in procurement processes going forward.

Contractors will know the old days of taking advantage of corrupt and criminal activities are over.

This is a precedent in setting the climate for contractors engaging with Eskom and other SOEs.

This particular contract involves equipment that makes up "the brains" of the power station, he says.

De Ruyter says ABB is a large global company - and Eskom has used its services for years. ABB is also relied on to service and replace equipment.

It becomes difficult and expensive to switch to new brands. 

These are practical and commercial decisions we will have to take into account, he says.

Blacklisting it, is not an easy decision to make - as it will compromise Eskom's systems.

Mothibi says the SIU is prepared to do the same with other multi-nationals.

"We are investigating at various institutions across government."

De Ruyter says there is a further R3 billion in irregular expenditure to recover at Kusile, alone.

After that Eskom will move onto contracts awarded for Medupi.

The process will not stop, we do not intend to take our foot off the accelerator.

De Ruyter reiterates that blacklisting ABB now however, will mean all of its installed equipment will have to be removed. And add four more years of work to Kusile, increase the risk of load shedding.

We are 90% complete- we must complete the project and get Kusile connected to the grid.

As for blacklisting companies implicated in corruption -  Mothibi says this is being considered.

De Ruyter also opts not to mention names.

He however acknowledges a company, Impulse, was a sub-contractor of ABB. Former executive Matshela Koko's step daughter had a significant interest in the company. De Ruyter says the matter is subject to further investigation.

Considering the implicated Eskom officials - Adv Mothibi assures the criminal investigation is ongoing. 

There have been arrests in other areas of the SIU probe, but none yet relating to the ABB South Africa contract. 

Public Enterprises Minister Pravin Gordhan says more of this work needs to be done and intensified.

Eskom and other SOEs have been the targets of state capture.

Minister of Justice and Correctional Services Ronald Lamola says the development is "ground breaking".

Eskom will approach National Treasury to allow the work to be continued by ABB, with the proviso that ABB will make no profit from the continued execution.

De Ruyter says that Eskom received work from ABB, which is of value.

The challenge is Kusile is an ongoing project - it is 90% complete.

Appointing a new contractor will delay the commissioning of Kusile by another 4 years.

It will create further risk of claims from contractors and increase the risk of load shedding for four more years.

Eskom CEO Andre De Ruyter says the settlement amount is made of irregular variation orders amounting R800 million.

The costs associated with the irregular awarding of the contract amount to R250 million.

Interest on the money irregularly paid is R380 million.

It also includes a profit element accrued to ABB of R160 million.

The settlement is inclusive of the capital amount and interest. The agreement will be subject to the review of the High Court in due course.

Civil proceedings are continuing and a criminal docket has also been opened, says Mothibi.

The SIU had been investigating the matter since August 2018. 

Speaking at a fundraiser hosted by the SA National Editors' Forum, De Ruyter said that Eskom so far has recovered R1.1 billion from McKinsey, and is in the process of recovering more than R700 million from Trillian - these funds were unlawfully paid to the firms.

Eskom CEO Andre De Ruyter has said that there is a risk that the full R3.8 billion being pursued from former executives and board members might not be recovered, but pursuing the civil claim is a matter of principle - as the power utility tries to re-establish a culture of accountability.

So far Eskom has parted ways with 30 senior executives and managers and hundreds of other employees in a bid to rid the power utility of corruption.

Power utility Eskom and the Special Investigating Unit (SIU) will this afternoon provide an update on developments in the fight against corruption.

Earlier this year Eskom and the SIU issued a summons to recover R3.8 billion from former executives, board members as well as members of the Gupta family.

The power utility has been used as a vehicle for state capture, with certain officials using their positions to funnel funds from contracts to the Gupta family, and their business associates - this has been widely documented in media reports and evidence of this has been presented in testimonies before the Judicial Commission of Inquiry into State Capture as well as the Parliamentary inquiry into Eskom. The SIU has been investigating numerous contracts at Eskom.

In this particular case, Eskom had issued the claim of damages against former executives including Brian Molefe, Anoj Singh, Matshela Koko and Suzanne Daniels, as well as board chairperson Ben Ngubane and board members Chwayita Mabude, Mark Pamensky and former Minister of Mineral Resources and Energy Mosebenzi Zwane, Eskom has said the former officials and board members neglected their fiduciary duty in allowing funds to be diverted so that the Gupta family and their business associates could acquire Optimum Coal Holdings (OCH). OCH owned Optimum Coal Mine, a supplier to Hendrina power station.

Public Enterprise Minister Pravin Gordhan and Minister of Justice and Correctional Services Ronald Lamola will also be attending the briefing, set to start at 14:30.