2017 WRAP: Tears, tirades in Parliament in Eskom’s annus horribilis | Fin24
 
  • Credit Rating

    Moody's has (again) said that weak state-owned entities are a risk to SA's sovereign credit rating.

  • SARS Inquiry

    Judge Nugent has recommended the president sack suspended SARS boss Tom Moyane.

  • Nene Rand Rollercoaster

    Simon Brown says savvy investors worked out how the rand would react to uncertainty at Treasury.

Loading...

2017 WRAP: Tears, tirades in Parliament in Eskom’s annus horribilis

Dec 28 2017 10:12
Yolandi Groenewald

Johannesburg - Plunder, leadership crises, liquidity woes and Gupta-related scandals all plagued South Africa’s electricity provider in its most dismal year ever.

During the dark days of load shedding, no one suspected Eskom’s worst was yet to come. But the state utility became the master of its own destruction as it turned into the cash cow of a few connected individuals who made a pretty bundle out of its compromised leadership.

The year ended in tears and tirades in Parliament as Eskom executives laid bare the details of the company's innermost secrets. The parliamentary inquiry exposed the state utility as a corruption-riddled entity, where bosses were up for sale and could be used to secure the best deal with the right connections.

A revolving door leadership - Eskom had three CEOs within one year - and suspended executives left the utility reeling as it struggled to find the cash to keep going, including paying salaries.

Molefe: The beginning

A year ago there were strong indications that the power utility's new year might not be that happy. Eskom boss Brian Molefe had just tearfully resigned after being implicated in Public Protector Thuli Madonsela’s state capture report, and dark clouds were gathering around the Tegeta scandal, where the Gupta family stood central.

Tegeta Exploration & Resources, a company owned by the Gupta family and President Jacob Zuma's son Duduzane, bought the Optimum coal mine in a deal questioned by many in 2015.

More and more reports emerged, exposing the underhanded tactics Eskom bosses used to help the Guptas acquire the mine, and disclosing that Eskom even provided the loan that enabled the deal to go through.

The full extent of the alleged conniving would later be revealed in the Gupta email leaks, and revelations from the email trove went a long way to laying bare all Eskom's alleged dirty secrets.

Yet as 2017 began Eskom stuck its head in the sand, while bosses denied and lied about their role in the goings-on.

The year also started off with Eskom and especially its then acting CEO Matshela Koko flying the flag for nuclear and increasingly sabotaging South Africa’s fledgling renewable programme.

It wasn’t a big surprise when Eskom eventually refused to sign any further power purchase agreements, after Eskom bosses such as Koko had made it clear that according to them, renewable power was bankrupting the state utility.

It also did not take long for Koko to start grabbing headlines for reasons other than his vehement opposition to renewables. He was constantly linked to the Guptas and the Optimum coal deal, along with Molefe.

After his tearful resignation Molefe did not go quietly into the night, instead procuring for himself a R30m pension that became the centre of a bitter court battle as he tried to justify this amount. At one stage Molefe’s return to Eskom loomed large, should he not be granted this pension.

The Tegeta scandal

The Tegeta scandal picked up speed in April when a leaked report from National Treasury raised red flags about the coal quality at Tegeta.

Coal quality was central in the Guptas' takeover of the mine. The struggling Optimum mine, owned by Glencore, was bought by the Guptas for a song after it went into business rescue due to a R2.1bn fine levied by Eskom bosses for the supposedly poor quality of coal.

Of course new owners Tegeta inherited the massive fine, but after arbitration the amount was reduced to R255.4m. However, the power utility refused to disclose the details of the deal, citing a confidentiality agreement.

When questioned about Eskom’s capitulation at its annual results briefing in June, chief financial officer Anoj Singh blamed a crusher for the initial poor quality of coal, and said arbitration resolved the issue.

Like Koko, Singh also soon became the face of Eskom’s woes as his denials and links to the Gupta family came to light.

The #GuptaLeaks

In May Eskom executives’ alleged sins were laid bare in the email trove known as the #GuptaLeaks.

The emails painted a picture of Singh's involvement in irregularly awarding contracts to Gupta-linked businesses, while at the same time receiving gifts such as trips paid for by the controversial family. Singh denied wrongdoing and promised to explain details in a docket he would present to Parliament when it was his turn to testify.

An investigative report by amaBhungane and Scorpio, co-published by Fin24 in early September, stated that the Gupta family had bankrolled six or seven luxury Dubai stays for Singh, and even "opened a shell company for Singh in a highly secretive United Arab Emirates jurisdiction".

But it took some pressure from investors and financial institutions to get rid of Singh after he was finally suspended by Eskom in late September, after being placed on special leave at the end of July. Singh is yet to have his disciplinary hearing, despite the cloud hanging over his head.

Koko was also placed on special leave and later suspended. But his disciplinary hearing soon turned into a farce as Eskom's case against him fell apart. Critically, none of the the Gupta-linked scandals was included in his charge sheet. Instead, it focused on allegations of nepotism relating to his stepdaughter’s company receiving contracts from Eskom.

In his disciplinary hearing, Koko alleged that he was targeted by a faction inside Eskom he was apparently trying to take down. This faction was allegedly making a pretty penny stirring up trouble at Eskom’s new build programme at Medupi and Kusile, leading to inflated contracts and project delays.

As a result, the cost of the projects spiralled out of control.

McKinsey and Trillian

Eskom’s bill was mounting, and it became increasingly clear it had become a cash cow.

The #GuptaLeaks also exposed how global consultancy firm McKinsey unlawfully netted a contract with Eskom, with the help of Gupta-linked Trillian Capital Partners.

Eskom has since called for McKinsey and Trillian to repay R1.6bn, after admitting that the amount was “unlawfully paid out in 2016 and 2017” to the companies, in relation to a “turnaround programme” McKinsey worked on for Eskom.

The politically influential Trillian had allegedly received a kickback for securing the billion rand contract for McKinsey. Singh was at the centre of the scandal, and was singled out for lying about payments to Trilian.

Credit dries up

In between Johnny Dladla took the reins after Koko’s suspension, but near the end of the year was rotated out for Sean Maritz, who apparently also had some skeletons in the closet. Leadership stability as cash reserves dwindled was not highly prized, apparently.

Other departed Eskom leadership members include former chairperson Ben Ngubane, former CEO Tshediso Matona, former chairperson Zola Tsotsi, and former executive for group capital Dan Marokane. All of them will have to face Parliament at some time to account for their actions while employed at the company.

The numerous scandals and leadership crises of course had a detrimental effect on Eskom’s credit ratings and due diligence, and to no one’s surprise the utility could not raise needed funds. Liquidity became a major issue, and Eskom board chair Zethembe Khoza was forced to deny that Eskom would not be able to pay salaries in January.

Eskom’s latest report to its shareholder representative, Public Enterprises Minister Lynne Brown, showed that the state utility’s liquidity is fast drying up, with only R1.2bn cash in hand at the end November 2017 against a target of R20bn.

Latest acting chief executive Maritz said Eskom has acquired the necessary funding.

Inquiry: the final nail in the coffin

Ultimately it was the parliamentary inquiry into corporate governance at Eskom, which started in mid-October, that put the final nail in the coffin of Eskom's worst year ever. Parliamentarians, including former finance minister Pravin Gordhan, grilled the former executives, former board members and various government officials on the power utility's questionable record of corporate governance, as well as allegations of corruption and maladministration.

The inquiry is not yet over. There are rumours that the Guptas will be subpoenaed and Deputy Minister of Public Enterprises Ben Martins also still has to give his side of the story after legal head Suzanne Daniels gave a tearful account of a meeting between her, Martins and Ajay Gupta where suspensions at Eskom were allegedly engineered.

Daniels herself was suspended after her testimony, apparently for unrelated reasons.

What the future may hold

With energy regulator Nersa granting Eskom a tariff hike of only 5% instead of the nearly 20% it requested, days are indeed dark at Eskom as 2017 draws to a close. Critical questions about where the utility will find the funds to keep going, and whether Koko will indeed make a return to power after his disciplinary hearing failed to make any impact, remain.

Or could 2018 be the year that Eskom takes the hard lessons of 2017 to heart, and starts the real turnaround it needs? With several compromised individuals still at the helm, it will take a gigantic effort.



* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

NEXT ON FIN24X

 
 
 
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The appointment of Tito Mboweni will:

Previous results · Suggest a vote

Loading...