Joining the dots: Eskom and the state capture story

The Eskom Inquiry may have been postponed, but the momentum that is gathering against the forces of state capture cannot be stopped, say academics Anton Eberhard and Catrina Godinho.

SOUTH Africans have witnessed the rallying of civil society, investigative journalists, academia, public leaders and concerned citizens who have come together to expose an overwhelming and growing body of evidence around the mechanics of state capture. The pending Eskom Inquiry is set to take that to a new level.

The Eskom Inquiry may have been postponed, but the momentum that is gathering against the forces of state capture cannot be stopped.

Speaking at the UCT Graduate School of Business (GSB) on Tuesday, former finance minister Pravin Gordhan reminded us that there is can be no middle ground on the issue. South Africans need to get more involved in exposing the issues around state capture and mobilising against them. Our shared heritage is one of struggle in the face of injustice and this story of injustice is one that has the potential to not only undo the legacy of the ANC, but also the promise of a democratic South Africa.

As academics, we have heeded this call. On Tuesday we launched our first piece of work addressing these issues, a reference booklet designed to support the Eskom Inquiry. The booklet details how the governance of Eskom was repurposed and rent-seeking opportunities centralised to allow a politically-connected elite to unlawfully benefit from procurement deals.

This work is part of a larger academic initiative – the State Capacity Research Project – convened by Prof Mark Swilling, which clearly shows that we are not dealing with random or isolated incidences of corruption, but the actions of an organised and well-connected syndicate that is systematically extracting large sums of money from the South African fiscus.

With annual revenues nearly three times that of Transnet and six times SAA’s, Eskom is by far the most economically important and largest state-owned company in South Africa. This has made the utility particularly vulnerable to corrupt interests and it is therefore also a good place to start the process of delving more deeply into the mechanics of state capture.

With the benefit of hindsight, it is easy to see how the story at Eskom unfolded. Shortly after Zuma ascended to the presidency in 2009, he expressed an unusual degree of interest in board and management appointments to Eskom and Transnet.

Public enterprises minister Barbara Hogan, who resisted dubious board appointments, was swiftly replaced by Malusi Gigaba. Seemingly more yielding, one of his first moves was to overturn a procurement decision that the Eskom executive and board had signed off on - the replacement of Koeberg steam generators.

Soon after, Gigaba gutted the Eskom board and agreed to new appointments - most of whom had no corporate or electricity sector experience. This was in stark contrast to the previous board which, led by Reuel Khosa, had provided relatively stable and strong leadership in Eskom over the preceding decade.

Eskom’s CEO at the time, Brian Dames, came under extreme pressure from Gigaba and was eventually replaced by Collin Matjila as acting CEO in March 2014, against then Eskom chairman Zola Tsotsi’s advice. Subsequently published #GuptaLeaks emails revealed that just days before the appointment was made, Gupta lieutenant Salim Essa circulated Matjila’s CV to Tony ‘Rajesh’ Gupta and Duduzane Zuma.

President Zuma’s second term generated more aggressive governance changes to further grease the wheels of rent-seeking at Eskom. Lynne Brown replaced Gigaba as Minister of Public Enterprises in May 2014.

Matjila had already signed the controversial R43 million deal with the Gupta’s New Age newspaper, and further used his time as acting CEO to sabotage the Koeberg steam generator tender and an IT contract that could have saved Eskom a billion rand - instead favouring T-Systems, a company lobbied for by Gupta associate Salim Essa.

Ending Matjila’s run on the utility, Brown appointed the former DG of Public Enterprises, Tshediso Matona, CEO in October 2014. Unfortunately for him, she also appointed a new board that December – full of Gupta associates.

In January 2015, Matona launched a tender for the provision of forensic and anti-corruption consultation services for Eskom – later awarded to Dentons law firm – which proved to be his downfall. March that year saw the shock suspension of four executives – including Matona – followed by the ousting of Tsotsi as Eskom’s chair just a few weeks later. This was clearly not the move of a fledgling board and appears to have been orchestrated from the highest level.

President Zuma not only personally called the DG of Public Enterprises to put this in motion (Brown was in Dubai at the time), but also summoned Tsotsi to his Durban residence where Dudu Myeni relayed the President’s instructions.

Ben Ngubane, a favourite of the President, was then appointed board chairman, despite previous efforts by the ANC to prevent this. Brown also agreed to second Brian Molefe, along with his right hand man Anoj Singh, from Transnet.

Dentons’ contract was terminated just two months after their investigation began and the ever self-proclaimed victim of misinformation, Minister Brown, withheld the report – containing the names of guilty parties and damning evidence of their wrongdoing – from parliament and the public.

Brown also kept the report from the Eskom war room and Deputy President Ramaphosa, who had been charged by cabinet with restoring electricity supply security and improving governance at state-owned companies. This greatly undermined this critical work. 

The governance of Eskom thus captured and repurposed, the next period witnessed the scaling up of grand corruption, with the Guptas now brazenly managing the complex enterprise of brokering and money laundering.

The most boldfaced examples include Eskom’s facilitating and financing of the Gupta’s acquisition of Glencore’s Optimum.

First, coal major Glencore was driven into ‘business rescue’ by Gigaba. And while it was being shaken down, the Gupta’s Tegeta benefited from an Eskom guarantee (R1.6bn), a hefty and unusual pre-payment (R600m), and additional lucrative coal contracts – effectively enabling it to buy Optimum. It is a story that has been well told by investigative journalists notably at Amabhungane, who have done excellent work in connecting the dots of state capture.

Another well understood story is that of how Eskom funnelled at least R500m to the advisory firm Trillian – majority owned by Essa. An independent review – which Eskom lied about and ignored – flagged these deals as irregular. But Trillian was not only used as a conduit to transmit money to Gupta-connected networks, it was also used to legitimise irregular Eskom processes, including the awarding of the multi-billion-rand tender for the refurbishment of Duvha power station boilers to Dongfang (since interdicted by the courts).

More remains in the shadows and further instances of Gupta-favoured coal contracts and the squeezing out of major coal-miners will undoubtedly be revealed in Parliament’s inquiry.

This will confirm what we know already; Eskom is in trouble. Burgeoning costs, arguably propelled by rent-seeking and corruption, have resulted in electricity tariffs increasing by more than 400% over the past decade, while electricity services have deteriorated. The effects of this on the SA economy and prospects for economic development and transformation hardly need to be spelled out.

Ultimately, any project to repurpose Eskom’s governance to facilitate systematic corruption in the power sector undermines and threatens the utility’s financial viability and its ability to power South Africa’s economy and improve the welfare of all its citizens.

Parliament’s Inquiry is positioned to further illuminate how Eskom has come to where it is today, and hold those responsible to account. Hopefully it will also recommend improvements to governance, not just at Eskom but at all of our state owned companies. Whatever the outcome, South Africans are going to be watching the process closely.

  • Anton Eberhard is a professor and Catrina Godinho a PhD candidate at the UCT Graduate School of Business.

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