Eskom to cancel R14 billion contract after probe findings

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Eskom Holdings plans to cancel a contract to buy as much as R14 billion of fuel oil from Econ Oil & Energy Ltd., after a probe it commissioned found Econ’s fees had been inflated, a person familiar with the situation said.

Nothemba Mlonzi, a director at Econ Oil, declined to comment because she said the matter is a legal dispute, without elaborating whether any legal proceeding has been filed. The company is a "privately black female owned" business that supplies fuel oil to clients in a number of industries, according to its website.

The process of canceling the contract began earlier this month, following completion of the report.

In a statement, Eskom said it had written to the supplier notifying them of its intention to terminate the contract "through the legal process". The power utility also committed to taking disciplinary action and recouping losses where applicable. 

"Eskom is currently reviewing the roles played by all stakeholders in awarding the tender, including the role of its own employees. Where applicable, disciplinary processes will be pursued and criminal charges laid.

"As Eskom has previously stated, a process to review all major contracts commenced earlier this year, and where evidence of corruption or other irregularity has been discovered, Eskom will not hesitate to take steps to cancel such contracts, and to recoup any losses that it might have incurred as a result of any irregular actions."

The probe was conducted by Wim Trengove, one of South Africa’s best-known lawyers, after Eskom’s management initially asked the board for permission to cancel the contract in January, the person said, asking not to be identified as a public statement hasn’t been made. Sifiso Dabengwa, an Eskom director at the time, asked for the probe, the person said.

Dabengwa has since resigned from Eskom. In his resignation letter, verified by Bloomberg, he disagreed with the findings of the probe and said they didn’t prove there had been “fraud and corruption,” but only that there had been allegations of the crimes.

Dabengwa declined to comment when called by Bloomberg. Eskom and Trengove didn’t respond to requests for comment.

The expected move to cancel the five-year contract and seek supplies directly from oil refineries comes as Eskom Chief Executive Officer Andre de Ruyter seeks to cut expenses. The state-owned utility is struggling to meet the cost of maintaining its power plants and servicing a 480 billion-rand debt burden.

* This story has been updated to include comment from Eskom. Additional reporting by Fin24.

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