SCORPIO

Top Eskom contractors in fresh R75m Kusile slush fund scandal

By Pieter-Louis Myburgh 26 November 2019
Caption
Medupi Power Station near Lephalale in Limpopo. (Photo: Werner Beukes / Sapa)

Some of the lead contractors at the problem-ridden Kusile power station project — including JSE-listed Stefanutti Stocks and the local subsidiary of multinational Tenova TAKRAF — made substantial payments to an apparent slush fund that was used to enrich top Eskom officials. These latest revelations provide yet another glimpse into the shady dealings at a project that is now five years overdue and has exceeded its original budget by a staggering R80-billion.

Scorpio can today reveal that Kusile contractors Tenova Mining and Minerals, Esor Construction, Tubular Construction and Stefanutti Stocks paid altogether R75-million to a little-known company whose bank account was used as a slush fund to enrich top Eskom officials.

The four firms, whose respective Kusile contracts have a combined value of more than R10-billion, made the questionable payments to Babinatlou Business Services between November 2014 and May 2018. A further eight smaller Eskom contractors made less substantial deposits into the account.

After receiving payments from the contractors, Babinatlou channelled at least R50-million towards then Kusile contracts manager France Hlakudi and two of his former Eskom colleagues. Hlakudi was by far the biggest beneficiary of the monies that exited the Babinatlou account.

Documents pertaining to the apparent slush fund have been submitted to the Hawks and the Special Investigating Unit (SIU).

Tenova, which throughout 2016 and 2017 flushed altogether R46-million into the Babinatlou account, was the largest contributor to the slush fund. Esor Construction paid R20.5-million to the account in the same period. Tubular Construction contributed just over R6-million. Tubular has already been fingered over allegedly corrupt dealings at Kusile following reports in 2017 that it paid R20-million directly into the account of an entity owned by Hlakudi. Stefanutti Stocks paid R2-million into the Babinatlou account.

Scorpio has seen documents submitted to the Hawks and the SIU that detail how Babinatlou distributed its payments from the Eskom contractors to the benefit of Hlakudi and former Kusile officials Mildred Nyoka and Dianah Motlou. All three officials have since left Eskom amid ongoing probes into their dealings with contractors at Kusile.

The payments that Tenova, Esor, Tubular and Stefanutti Stocks made to the Babinatlou account are especially troubling in light of Hlakudi and Nyoka having represented Eskom in negotiations with Kusile contractors over disputed payment claims worth hundreds of millions of rand.

Esor, whose 2011 Eskom contract for Kusile’s underground terraces has massively ballooned from an original value of R311-million to R1.9-billion, acknowledged last week that it had paid Babinatlou R20-million. But the company denied that it had been aware of any connection between Babinatlou and the Eskom officials. Esor claims it appointed Babinatlou “to effect improvements to schools” in Limpopo as part of the company’s commitment to corporate social investment (CSI). The company said it later realised that the whole thing was a sham.

It became apparent that Esor was a victim of a scam,” stated Esor.

Stefanutti Stocks also said it had contracted Babinatlou for a school project as part of its CSI initiatives, but, unlike Esor, it doesn’t think this was a scam. Stefanutti Stocks claimed it had received evidence that the R2-million it paid Babinatlou was actually used for upgrades at a school in Limpopo.

Stefanutti Stocks was unaware of the fact that Babinatlou may have been utilised to front for certain Eskom executives,” said the company.

Insofar as Stefanutti Stocks has been able to ascertain, the monies it paid were utilised for their intended purpose,” it added.

However, Scorpio can reveal that at least a portion of the R2-million from Stefanutti Stocks ended up benefitting the Eskom officials. Documents relating to the matter also suggest the supposed school project in fact never materialised.

The payments Babinatlou received from Stefanutti Stocks, Esor and Tubular will be examined in detail in future reports.

 

Read the full responses from Stefanutti Stocks and Esor.

Stefanutti Stocks Response

Dear Mr Myburgh
 
As requested, this is a response to the queries you addressed to Deborah Chapman on 19 November 2019.  In summary, the position of Stefanutti Stocks is as follows:
 
    • first and foremost it has engaged in an open and transparent manner with the SIU and importantly it has as part of its process of disclosure brought the payments made to Babinatlou Business Services to the attention of the SIU;
    • the request from Eskom representatives to fund the completion of a four classroom block at Mokhine High School at Sekhukhune in the Limpopo Province (at the cost of R2 million) was acceded to because the project was in keeping with other Stefanutti Stocks Corporate Social Investment initiatives;
    • Eskom representatives informed Stefanutti Stocks that Babinatlou would be managing the project and that they would accordingly be contacting Stefanutti Stocks to arrange for the payments;
    • the measures that Stefanutti Stocks adopted in order to ensure that the monies were indeed utilised for their intended purpose included the following: 
      • it established from the South African Revenue Service that Babinatlou was in good standing;
      • it had the benefit of details of the outstanding works required to complete the project;
      • it was sent photographs of the completed works.
    • Stefanutti Stocks also took comfort from the fact that they were contacted by the school principal, Mr MS Makgwale, who called them to thank them for assisting with funding the completion of the school and invited them to the official opening function and to inspect the works.
    • Stefanutti Stocks was unaware of the fact that Babinatlou may have been utilised to front for certain Eskom executives.  It was also unaware that Mr Kgomoeswana may be linked to Eskom executives. That said, insofar as Stefanutti Stocks has been able to ascertain, the monies it paid were utilised for their intended purpose.
    • The payments to Babinatlou were made purely for the purpose indicated.
It bears emphasis that Stefanutti Stocks takes its regulatory compliance obligations very seriously.  Hence its approach to its engagements with the SIU and for that matter its willingness, within reason, to engage in an open and frank manner with you. It should be appreciated in this regard that Stefanutti Stocks is also anxious to ensure that it does not compromise the SIU’s investigation in any way and we accordingly ask that the information provided be utilised in a responsible manner.

 

Esor Construction Response

 

Tubular said it had referred our queries to its attorneys, but the company did not respond before publication.

This first instalment of our Kusile exposé focuses on Tenova and how the R46-million it deposited into the slush fund had been directly utilised to enrich Hlakudi and his colleagues.

Unlike its fellow Kusile contractors, Tenova offered no explanations involving schools or other CSI initiatives in regard to the payments to Babinatlou. The company said a 2018 internal audit identified “certain payments” that were a “possible source of concern” and that it subsequently appointed law firm ENSafrica for advice and compliance support.

It also commissioned a forensic investigation into its work at Kusile and “proactively” reported the questionable payments to the Hawks, Tenova said in a statement. Read Tenova’s full response

Eskom said it was supporting the SIU investigation and that it couldn’t provide any further comment on the payments the Kusile contractors made to Babinatlou.

Whilst the investigation is at the advance stage [sic] Eskom is not at liberty to disclose the details thereof, as it may compromise the investigation,” the power utility told Scorpio.

Tenova’s Kusile claims battle

The documents seen by Scorpio show that Tenova started paying Babinatlou only a month after it had received more than R300-million from Eskom as part of a “global settlement” for work done at Kusile.

Tenova inherited Kusile contracts worth about R4-billion after it acquired engineering firm Bateman Africa in 2012. The work is being done by Tenova Mining and Minerals South Africa, a local subsidiary of multinational industrial equipment manufacturer Tenova TAKRAF.

Tenova is responsible for the design and construction of the coal and limestone stockyards and terrace material handling systems at Eskom’s long-delayed coal-fired power station in Mpumalanga.

In March 2016, Tenova received its “global settlement” payment from Eskom.

The documents submitted to the Hawks and the SIU reveal that Eskom made this payment after months of tense negotiations between Tenova and the power utility’s representatives over outstanding claims. Tenova at one point demanded payment of almost R1-billion.

However, a Kusile Execution Team, which was made up of Eskom officials and outside consultants, began to poke holes in Tenova’s claims. The Kusile Execution Team conducted an audit of the work the firm had done at Kusile and concluded that the company’s claims were “grossly overstated” or “inflated”, according to the documents seen by Scorpio. The Kusile Execution Team also found that Tenova’s claims were marked by “a myriad of erroneous and inaccurate entries” and a “lack of supporting information”.

But Tenova’s top executives at the time, including then CEO Walter Kung, MD Riccardo Tonini and commercial manager Nevil Morham, started meeting with Hlakudi, Nyoka and other Eskom officials without key Kusile Execution Team members, according to the documents.

The Kusile Execution Team members were also excluded from correspondence between Eskom and Tenova regarding the disputed claims. According to one of the documents, this development was “extraordinary”, seeing as the Kusile Execution Team members “were Eskom’s Claims Consultants appointed to deal with the matter”.

In other words, the very people who were supposed to protect Eskom from potentially inflated or inaccurate claims were sidelined by Tenova and, most disturbingly, by Eskom’s own Kusile officials.

Tenova strongly denies that it exploited Eskom.

As to the allegations of TMMSA [Tenova Mining and Minerals South Africa] having submitted to Eskom ‘grossly inflated and inaccurate claims’, this information is not correct. All the claims submitted to Eskom were legitimate and valid claims, based on contractual provisions and supported by adequate documentation.”

Tenova added that it was not aware of any audit of its claims performed by the Kusile Execution Team. Kung, Tonini and Morham have all left Tenova, the company confirmed. Kung and Morham could not be reached for comment.

Tonini stated the following: “Other than to confirm that I left Tenova some time ago, I do not wish to comment on any of the allegations made in your email as such allegations involve Tenova and I am bound by confidentiality undertakings to the Tenova group.”

“However, my failure to respond must not be understood by you that I agree with any such allegations and I reserve my rights,” added Tonini.  

 

Tenova’s top executives were involved in questionable negotiations with France Hlakudi, Eskom’s former contracts manager at Kusile. They are then CEO Walter Kung (left), MD Riccardo Tonini and commercial manager Nevil Morham. All three Tenova executives have since left the company. Composit Image: Chanel Retief

Enter Babinatlou

An email that forms part of the bundle of documents submitted to the Hawks and the SIU shows that Kung met with Hlakudi at the Mugg & Bean restaurant in Woodmead, Johannesburg in early February 2016.

The timing of this meeting is particularly interesting, seeing as Tenova had entered into a “sales and claims management” agreement with the obscure Babinatlou only days before.

According to company records, Babinatlou is located in Polokwane. Its sole director is one Maphoko Hudson Kgomoeswana. An online biography tells us Kgomoeswana is an accountant and that he completed his articles at Sizwe Ntsaluba. The Central Energy Fund, South African Airways and Eskom count are among his previous clients, according to the biography. It is not clear how Kgomoeswana knows the Eskom officials who were paid by or benefitted from Babinatlou.

The “sales and claims management” agreement was signed by Tenova’s CEO, Kung, and Kgomoeswana on 1 February 2016. According to the contract, Babinatlou would be entitled to a 5% fee for its “claims management services” each time Tenova was paid by one of its clients, including Eskom.

Tenova and Babinatlou also signed a second “consultancy agreement” on 1 March 2016, according to which Kgomoeswana’s company would “use its knowledge, skills and experience to Tenova’s benefit”.

On the surface, Tenova, therefore, had seemingly legitimate reasons for making large payments to Babinatlou.

However, a detailed analysis of Babinatlou’s finances, as unpacked below, reveals that Kgomoeswana and his obscure company were nothing more than fronts. As we’ll come to see, the monies Tenova ended up paying to Babinatlou would almost exclusively be utilised to the benefit of Eskom’s top Kusile officials, especially Hlakudi.

Kgomoeswana did not answer Scorpio’s detailed questions on the matter.

We do not wish to comment on any of your enquiries at this stage,” he said through his attorney at Polokwane law firm Henstock Van den Heever.

Hlakudi and Co’s Tenova bonanza

As mentioned earlier, Tenova received its first “global settlement” payout from Eskom in early March 2016. The settlement amounted to R304-million. A month later, in April 2016, a first payment of R6-million from Tenova landed in Babinatlou’s account.

By November 2017, after a further seven payments, Tenova had paid Babinatlou just over R46-million. An analysis of the cash flows to and from the Babinatlou account in this period leaves one with no doubt that the money Kgomoeswana’s company received from the Kusile contractor was in fact intended for Hlakudi and the other Eskom officials.

Of the R46-million Tenova paid Babinatlou, Hlakudi bagged almost R32-million. Eskom’s then claims negotiator at Kusile had therefore received almost 70% of Babinatlou’s “earnings” from Tenova. Most of this money, about R20-million, was directly channelled by Babinatlou into the account of Hlakudi Translation and Interpretation, an entity of which Hlakudi is the sole director. This is the same company that received R20-million from Tubular Construction, one of Tenova’s fellow contractors at Kusile.

Babinatlou also channelled millions of rand to Hlakudi’s chicken farming ventures and towards contractors who worked on large-scale renovations at his home in Pretoria.

The manner in which each of Tenova’s payments into the Babinatlou account had been processed displays all the hallmarks of a classic slush fund operation. Shortly after each payment, someone started draining the account, mostly by making payments to Hlakudi and his Eskom colleagues. By the time Tenova made a follow-up payment to Babinatlou, the latter’s account would be almost completely depleted.

Let’s take a close look at how some of the Tenova payments were utilised:

After Babinatlou received the initial R6-million from Tenova in April 2016, the monies were quickly forwarded to Hlakudi and his two Kusile colleagues. Only three days after receiving the payment, Babinatlou deposited R5-million in the account of Hlakudi’s Hlakudi Translation and Interpretation.

Three days after the latter transfer, Babinatlou also contributed over R140,000 to help Nyoka pay off her shiny Mercedes Benz SUV.

A further R55,000 was set aside to help Nyoka pay for her MBA studies and to finance her son’s student accommodation.

In the weeks after the first Tenova payment, Babinatlou also channelled about R130,000 to HT & SBE Investments, another chicken farming venture of which former Eskom official Dianah Motlou and Hlakudi’s wife, Nadine, were co-directors.

Tenova’s second payment to Babinatlou, amounting to R8.5-million, landed in the latter’s account in late July 2016. Babinatlou processed this money in much the same manner as the first one. Just one day after it received the money, Babinatlou made a payment of almost R5-million to Hlakudi Translation and Interpretation. It also forwarded almost R500,000 to HT & SBE Investments and contributed R380,000 to help Nyoka purchase a brand new VW Polo.

Babinatlou distributed each of the remaining payments it received from Tenova throughout 2016 and 2017 in almost identical fashion — mere days after receiving a large deposit from the Eskom contractor, Babinatlou would forward the cash to Hlakudi Translation and Interpretation and to other persons or entities directly linked to the three Eskom officials. In the end, a good R33-million of the R46-million Tenova paid Babinatlou ended up in the pockets of or somehow benefitted the Eskom trio.

Hlakudi, who played a central role in Tenova’s negotiations with Eskom over disputed claims, bagged by far the largest portion of this money.

Graphic: Bernard Kotze

The former contracts manager at Kusile appears to have read a WhatsApp message with detailed queries, but he did not respond.

Motlou, who is now locked in civil proceedings against her former employer, responded as follows: “The questions asked below are a subject of the court case that is pending between myself and Eskom Holdings. Because the court case is not finalised I cannot divulge [details] in these matters.”

Nyoka claimed ignorance. “I don’t know anything about that,” she said when asked about Babinatlou.

Eskom confirmed that Hlakudi, Nyoka and Motlou have left the power utility.

Hlakudi resigned before the SIU investigation started. Nyoka resigned after she’d been charged with “various acts of misconduct”, while Motlou was axed following a disciplinary hearing into various allegations of misconduct, according to the power utility. DM

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