South Africa

State Capture, Eskom edition: Brown orders SIU to probe Tegeta deal while Scopa grills Molefe and Ngubane

By Marianne Thamm 30 May 2017

There was enough nervous energy to fire up a power station at Tuesday’s Standing Committee on Public Accounts (SCOPA) where MPs were briefed by Eskom’s itinerant CEO, Brian Molefe, board chair Ben Ngubane, as well as officials from National Treasury’s Chief Procurement Office on a 2015 PriceWaterhouseCoopers report which had red-flagged supply management irregularities involving the power utility’s R4-billion contract with Gupta-linked Tegeta. Molefe and Ngubane defended their actions while MPs called for the contract to be cancelled. Meanwhile, Public Enterprises Minister Lynne Brown announced she had referred all Eskom deals since 2007 to the Special Investigations Unit (SIU). By MARIANNE THAMM.

On-Again-Off-Again Eskom CEO, Brian Molefe, bounced with nervous energy and occasionally looked startled as members of Parliament’s Standing Committee on Public Accounts (Scopa) on Tuesday relentlessly interrogated for almost five hours the specifics of Eskom’s 2015 R4-billion coal contract with the Gupta-linked Tegeta Exploration and Resources and which had flouted, on many levels, government’s supply chain management regulations.

Molefe on Tuesday demanded that he be allowed to address Scopa to provide “context” and after a heated discussion was allowed to do so.

It was Molefe and Eskom chair, Ben Ngubane, who had sat for almost a year on the exhaustive and damning PriceWaterHouseCoopers investigation, commissioned by Eskom, into contraventions of government’s supply chain management with regard to the awarding of the contract to Tegeta in 2015. A separate probe had also been launched by Treasury in 2015.

The PwC report highlighted that Eskom had entered into a 10-year contract from 2015 to 2025 with Tegeta despite the fact that its mining licence at the Brakfontein Colliery expired in 2020; that Eskom had signed the deal with Tegeta without conducting combustion tests on its coal; that Tegeta did not have crucial equipment for auto-mechanical sampling, and that Tegeta in fact did not meet several other requirements.

Molefe was fingered in former Public Protector Thuli Madonsela’s State of Capture report for his regular interaction with the Gupta family. Madonsela also found that Eskom appeared to have gone to extraordinary lengths to enable Tegeta to acquire Glencore’s Optimum mine in 2016.

Molefe passed the buck on Tuesday, saying he had not been involved in the signing of the Tegeta Brakfontein contract as he had only joined Eskom in September 2015 while negotiations for the contract between the Gupta-owned company had started in May 2013 and the contract was signed in March 2015.

Eskom had commissioned an internal audit report by PWC to “look at the environment in the coal contracting space”. Molefe said PwC had made recommendations in November 2015 highlighting 48 issues – all of which bar three had subsequently been attended to.

He told committee members that Eskom was still awaiting Treasury’s final report, that allegations that he had not co-operated with the Treasury probe were untrue, and that “we do not agree a lot of their findings because they have a misunderstanding with the process”.

Eskom board chair, Ben Ngubane, said that the SOE had gone through “a terrible time” and had appealed to the minister “to bring us a tested CEO”.

She brought Brian Molefe from Transnet. We were on the verge of a national catastrophe. And Brian came to Eskom. He sat at Eskom from 05:00 to 22:00 every day to resolve the issues. That is why we value him,” said Ngubane.

Ngubane told the committee that the country in 2015 had faced similar crippling load shedding as it had done in 2008 and which had led to Eskom’s waiving a competitive bidding process in order to urgently procure coal for its power stations.

To which Treasury’s Solly Tshitangano, chief director of supply chain governance, replied, “If it was so urgent why did it take you two years to negotiate?”

Ngubane also warned on Tuesday that the country was currently at risk of load shedding as Eskom was “not getting authorisation to stockpile coal for winter”.

He told the committee that the PwC investigation had been “a self-corrective report” and that Eskom had been aware of the problems that had been pointed out.

It was the EFF’s Ntombovuyo Mente who later suggested that Eskom had only commissioned the PwC report because “they knew they were doing wrong things. Your mistake was to go to PwC. It was an uncalculated move. You have to reverse the contract. Cancel it altogether.”

The IFP’s Mkhuleko Hlengwa said that he had a sense that “Tegeta was aided and abetted and raised like a baby to the point where it complied one way or another. Tegeta received special assistance,” he told the committee.

Tshitangano told committee members that Treasury had wasted a lot of time checking the non-compliance issues of the Eskom-Tegeta deal and that the PwC report had only been handed to Treasury in 2017.

Committee members also heard that there were many discrepancies in the hastily drafted contract with Tegeta that had appeared to have been a “copy-and-paste job” with the ANC’s Mnyamezeli Booi asking, “What professionals would write such a poor contract? You want us to put cement over it and move on.”

Replying to a question by ANC member Vincent Smith as to how Tegeta had been allowed to continue the contract when it became evident that the mine did not comply with water use conditions, Ngubane replied that the Department of Water Affairs had conducted repeated visits to mining sites to determine compliance.

To which Molefe quipped, “It is like driving over the speed limit when you have a valid driver’s licence.”

Well, it doesn’t make it right. If the Transport Department doesn’t give you a ticket, Parliament will give you a ticket. You can’t expect Scopa to accept that,” Smith shot back.

I unreservedly apologise,” said a chastised Molefe.

Ngubane later lashed out at Treasury saying it had thwarted Eskom from realising more than R500-million in savings lost to Kusile but was thrown off this line of argument by MPs who said Ngubane was deviating from the discussion on Tegeta.

Minister of Public Enterprises Lynne Brown announced that she was referring all Eskom contracts, including that with Tegeta, and entered into since 2007, for investigation by the SIU. Brown said she wanted a judge to head the investigation.

There are seven reports. Many of the recommendations have been resolved. But does it change the systematic process at Eskom?” said Brown.

Ngubane replied that the board would welcome an investigation.

Bring the investigation. We will love it. We want to clear our names. We don’t want to be so tarnished as we are. Bring on the investigations. I’m very happy the minister has ordered the SIU to come in. Let them come in‚ let them pick up whatever is criminal. As far as I’m concerned there’s nothing criminal that we have done,” he said.

It was the ANC’s Vincent Smith who warned Brown, Department of Public Enterprises DG, Mogokare Seleke and Ngubane that Scopa was “informed by the PFMA”.

Yours is to prevent fruitless and wasteful expenditure. The chair of the board, the minister and accounting officer must be aware that there will be consequences if all of us knowingly flouted the PFMA. Be aware right up front. We are three years into those 10 years (of the Tegeta contract). Are we going to wait for another few years before we realise it was fruitless? The board will be implicated. Go and think about what is happening here and find a solution,” warned Smith.

Temba Godi, Scopa chair, said the the PwC report had clearly indicated non-compliance with regard to the Tegeta coal contract but that Brown had “come with a possible solution so that we don’t have doubts about what has happened and what is happening. The SIU investigation will give a comprehensive picture of what is happening. The auditor-general doesn’t have the capacity.”

Later Godi issued a statement saying that Scopa welcomed Brown’s decision to institute the SIU investigation and that this would “go a long way to identify systemic challenges within Eskom and recommendations for improvements”.

Today, Scopa had an engagement with Eskom that confirmed and agreed with the PriceWaterhouseCoopers findings on non-compliance. Scopa acknowledges that Eskom has addressed 45 of the 48 identified non-compliance findings and that the remaining three are to be identified before the end of the year. However, the committee remains concerned about issues on non-compliance, particularly in such an important public utility as Eskom, which cannot afford to have lapses in governance. Scopa is concerned about all four sampled mines, not only Tegeta. Those four mines were only samples, meaning that there could be weaknesses in a number of procurement practices,” said Godi in a statement. DM

Photo: President Jacob Zuma welcomed by Eskom CEO Brian Molefe, Deputy Minister Mangwanashe and Chairman Ben Ngubane at Eskom headquarters in Megawatt Park, Sunninghill on his monitoring visit to the state owned power utility. 06/05/2016 Kopano Tlape GCIS.

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