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Cape Town - Eskom's contentious deals with McKinsey & Company will be reviewed as the power utility's board sets on a mission to clear the perceived corruption rot gripping it.
Eskom acquired the advisory services of McKinsey in September 2015 to the value of R1bn per year and subsequently subcontracted 30% of the services to Trillian, according to a damning investigation by Advocate Geoff Budlender.
The subcontracting of the services is believed to have done in terms of the so-called supplier development programme, which requires international firms to enter into an agreement with local service providers, which in turn is supposed to gain experience and develop the necessary skills and benefit from part of the contract.
Eskom revealed that it paid R900m to McKinsey in consulting fees, while the politically connected Trillian group of companies got a R495m payment. The payment was made despite Trillian not having directly conducted any work for the utility.
"R1.4bn in contracts will be reviewed," said board chairperson Zethembe Khoza.
READ: McKinsey says it ditched Trillian partnership over shareholder flags
McKinsey said although the company at one time explored a partnership with Trillian, it decided not to proceed due to concerns over its shareholding.
However, the global consulting firm has since announced that South African director Vikas Sagar has been placed on temporary leave pending a review of Budlender's report.
Sagar is accused of misrepresenting the firm in the Gupta-linked Trillian deal after the Budlender report disclosed a letter from Sagar informing Eskom that McKinsey subcontracted a portion of services to be performed by Trillian.
"We have notified Eskom that the letter inaccurately characterised Trillian as a subcontractor of McKinsey," said a McKinsey spokesperson in a statement on Wednesday.
Eskom interim chief executive Johnny Dladla said he is calling for a review because when asked in Parliament if Eskom has a contract with Trillian, the answer given was no.
"The reason was because the contract was with McKinsey who then asked us to pay Trillian R500m. They were not contracted to Eskom," he explained.
"I have suspended work with McKinsey and am doing an investigation into this.... McKinsey is not on the premises as I am talking to you now."
Responding to this, the McKinsey spokesperson said it mutually agreed to suspend work with Eskom on 10 July and agreed to cooperate with Eskom’s investigation.
"As we have previously stated, and based on our investigation to date, McKinsey has never had a subcontract with Trillian", the company reiterated.
Dladla added that dealing with perceived corruption will help Eskom improve its overall performance.
Eskom's earnings before interest, taxes, depreciation and amortisation (EBITDA), which is a measure of a company’s operating performance, surged 14.4% to R37.5bn in the year-ended 31 March 2017. This is up from R32.8bn in same period last year.
Revenue rose 8% to R177bn from R164.2bn, driven largely by a 12.1% increase in export sales and a 9.4% tariff increase that was granted by the energy regular last year.
However, Eskom also incurred a R3bn irregular expenditure bill.
The power utility held its financial results presentation on Wednesday after it was postponed when auditors raised red flags over irregularities relating to former and current executives Matshela Koko and Brian Molefe.
READ: Koko faces disciplinary action over R1bn contracts
The utility also announced on Wednesday that it has instituted disciplinary proceedings against Koko.
Koko, who is head of generation at Eskom, was relieved of his acting chief executive duties when Brian Molefe returned briefly in May.
He was then suspended pending an investigation after the Sunday Times revealed that Koko’s stepdaughter, Koketso Choma, was a director at Impulse International when it netted at least R1bn in contracts from Eskom.
"I have asked Eskom’s new leadership to roll up its collective sleeves and immediately address three operational matters: contract management, supply chain management, conflicts of interest and other matters that would improve the reputation of the company," Public Enterprises Minister Lynne Brown said on Wednesday.
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