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Eskom Dentons report shows serious breaches

Feb 08 2017 20:03
Pieter-Louis Myburgh

Johannesburg - Despite being heavily redacted, the long-awaited Dentons report on Eskom sheds light on shocking financial abuses at South Africa’s state-owned power utility.

News24 has obtained a copy of the report, which was commissioned by the Eskom board in 2015, through a Promotion of Access to Information Act (PAIA) application.

Dentons, the law firm appointed to conduct an audit into “the status of the business and challenges experienced by Eskom”, identified serious cause for concern regarding the manner in which Eskom awarded contracts for the supply of diesel and coal, among other shortcomings.

According to the report, some of the contractors - who benefitted from the nearly R30bn that Eskom spent on diesel for its open cycle gas turbines between 2013 and 2015 - were companies that had no footprint in the industry and that may have been set up by Eskom employees themselves.

“A cursory review of the web for some of these suppliers conducted by an officer of Eskom contemporaneously suggested they were not well established entities. We were informed that some of the suppliers had rudimentary invoices (for example, prepared in Microsoft Word rather than generated from an accounting system),” reads the report.

The Dentons investigators were also “told there are anecdotal references to employees establishing companies using their family members, and then removing themselves from the board before probity checks.”

The law firm identified other inconsistencies in the invoices submitted by some of the diesel suppliers, including invoices only being submitted after Eskom had started paying the suppliers in question.

“It is possible therefore that Eskom was conducting business with [company’s name redacted] before it had established an invoicing system, which may indicate that it was set up with this specific purpose,” according to the report.

The website domain for another diesel supplier was found to have been registered by an employee of Sasol Oil, a subsidiary of Sasol.

“This is an unusual relationship and may represent a conflict of interest,” reads the report.

Dentons also found that Eskom may have “wasted” R200m in just two years because it failed to secure the requisite discounts from its diesel suppliers.

Coal contracts

When it comes to Eskom Coal Supply Agreements (CSAs), Eskom’s conduct has been no less dubious.

According to Dentons, Eskom’s primary energy division (PED) routinely ignored the advice of the parastatal’s own legal team when it awarded coal contracts.

“It has been common practice for PED to disregard their (Eskom’s legal services unit) recommendations and do as they please. It seems that the PED even went as far as sourcing its own legal opinions when it wanted to conclude CSAs,” the report said.

“We were informed that PED has its own team that attends to coal supply agreements and that in some instances the CSAs are outsourced to external law firms,” the report added.

In addition to this, several of Eskom’s coal suppliers had been in breach of the CSA requirements.

In one instance, a supplier even delivered coal without a signed CSA, whilst another supplier did not have an environmental assessment report.

*Follow News24 and Fin24 for further coverage on the Dentons report.

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