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Much more to Dentons report than Eskom revealed

Feb 09 2017 11:44
Matthew le Cordeur and Pieter-Louis Myburgh

Cape Town – The much talked-about Financial Mail cover story on Thursday that publishes details from several versions of Eskom’s Dentons investigation paints the power utility as rotting from within.

The feature comes after Eskom called a press conference this week to publicly release a diluted version of Dentons' investigative report, which was commissioned by Eskom in 2015 to look into the causes of load shedding, its financial crisis and the new build delays. It is believed the presser was to off-set the Financial Mail feature.

However, Eskom then changed its mind at the last minute after legal opinion and said members of the public needed to apply to read the report. News24 applied and received the diluted report this week, which identified serious cause for concern regarding the manner in which Eskom awarded contracts for the supply of diesel and coal, among other shortcomings.

READ: Eskom Dentons report shows serious breaches

However, the Financial Mail has revealed what was reported in various earlier versions of the report, before it was locked up in the Eskom chairperson’s vault.

'Notion that the tariff is not cost-effective loses credibility' - Dentons

Financial Mail deputy editor Sikonathi Mantshantsha does not hold back the punches in his cover story, titled, “The rot inside the national power utility”.

He quotes one of the earlier reports as saying: “If management’s energies are centred on leveraging Eskom’s considerable buying power for self-interest, rather than to drive efficiencies, the notion that the tariff is not cost-effective loses credibility.”

This could have serious consequences on Eskom’s attempt to get higher electricity tariffs from the National Energy Regulator.

“There is a significant list of examples of questionable procurements, and poor contract management, even including areas that should be in the spotlight, such as ad hoc arrangements with suppliers of diesel not subjected to discounts despite the purchasing power Eskom has,” Dentons said in one of the versions of the report.

“There would appear to be prima facie indicators based on the above that Eskom breached the treasury regulations pursuant to the Public Finance Management Act, 1999, and therefore contributed to its own financial challenges,” it said.

It pointed to coal transportation costs being escalated to a point where it was 50% of the cost of the actual coal. In one case Eskom paid R13.4m for R4.2m worth of coal.

Integrity of chair and execs questioned

Mantshantsha alludes to the fact that Eskom acting CEO Matshela Koko might be implicated in the original report. He writes that “Koko’s name featured prominently”, in a third story titled “Anatomy of a corporate coverup”.

He said he “conducted numerous interviews with six current and former Eskom board members and executives, who spoke on condition of anonymity”.

Pointing to Koko, he said one source claimed: “The wrong person came back to work, while those who did not need to be suspended never came back.”

Koko had been suspended along with (at the time) CEO Tshediso Matona, finance director Tsholofelo Molefe and group capital executive Dan Marokane.

Another source claimed: “Some influential directors, who seemed to have had another meeting outside of the board, decided at that (Dentons presentation) that the names of the people would be removed from the final report.”

Call for full report to be published

The report also explains that Dentons was not able to conduct a full investigation and was cut off from continuing the process after 45 days, even though the board believed it might require 12 months.

“Still, it seems Dentons reached a finding that there was evidence of illegal behaviour — one reason why Eskom might want the report buried,” reported Mantshantsha.

Democratic Alliance MP Natasha Mazzone said this week she will continue with her application in terms of the Promotion of Access to Information Act to gain access to the full, original report.

“There is no valid reason for keeping this report secret as South Africans have every right to know the truth about what is going on at such a vital state entity,” she said.

What Eskom's released Dentons report says

According to the “cleansed” 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),” Fin24 quoted the official Eskom report as saying.

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.”

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.

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.

Eskom spokesperson Khulu Phasiwe said the utility will respond shortly.

Read Fin24's top stories trending on Twitter:

dentons  |  eskom  |  matshela koko  |  dentons report
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