ESKOM Update on SCOPA recommendations on oversight

Meeting report

Eskom update: failure of protocol

The Chairperson said the Committee had met on 18 February to receive a briefing by Eskom on two of its power stations. The meeting had proceeded without the presence of the Eskom Board members, which was unacceptable. He asked the Eskom chairperson to explain the circumstances that had led to the Board’s absence.

Mr Malegapuru Makgoba, Chairperson: Eskom, replied that the non-appearance of the Board was due to a protocol failure. On 11 February, a communication was issued by the Committee through the Department of Public Enterprises (DPE) to invite Eskom to a meeting. The Board was informed of the invitation only on 14 and 15 February. There was only one working day to prepare documents for the Committee. A preliminary document had been prepared and was sent to the Department of Public Enterprises (DPE), but the Board was not involved in this. When the protocol system required multiple participants and there was a failure in communication, it resulted in the issue the Committee had raised today.

He said the Board sincerely apologised to the Committee. There had to be a mechanism through which this protocol failure was not allowed to occur again, or was minimised. The Board would not deliberately defy the Committee. Its absence was not out of defiance, but because of a failure in the protocol system. The Board consisted of both executive and non-executive Members who hold other positions, and it was important to consider this.

Mr S Somyo (ANC) said the chairperson’s honesty was appreciated. Members had a massive document before them, and it had been received only in the morning. This posed another problem in regard to the Committee’s ability to conduct effective oversight. The Committee had visited Eskom and invited the entity to come and account to Parliament. There must be some way to deal with the protocol system, otherwise it disadvantaged Members. One of the documents was being seen by Members only now, for the first time.

Mr B Hadebe (ANC) said the apology was accepted as unfortunate, and the honesty was appreciated. There had to be a reasonable time for Members to receive, process and analyse documents. Members could not be expected to analyse 5 000-word documents in less than 24 hours. The devil lay in the detail. The Committee would ask questions in the future, and it would be told the information was in the report. It was irrational and unreasonable to expect Members to have the capacity to process these documents. One of the documents was received only yesterday at 7pm. Where had Members found the time to process it? This could not happen again in the future. Eskom would have to guide Members in processing all of the information before them.

The Chairperson noted the apology, and said the transparency was appreciated. On 18 February, he had asked whether the Board was aware of the presentation before Members. The response was in the affirmative, so it was strange that the Board had not seen what was being presented. The Committee read documents for processing, understanding and analysing. The current process of correspondence was not going to be followed anymore. It was setting the Committee up for failure. From today, correspondence would be sent to the entity, and not the shareholders. It had not yielded desirable results for the Committee’s own competence. Members would not be made out as if they did not read.

He said the first batch of documents had arrived on 2 March. There would be no further correspondence through the DPE. The Department was not doing the Committee any justice. There needed to be an honest, fair and professional relationship between the Committee and the Department. Documents had been received only yesterday, and this was unacceptable. It had been asked if the Board was aware of the documents, and the answer had been in the affirmative, but the chairperson had now said the Board was not aware. What was actually going on? Was the Board a “sideshow?”

Mr Andre de Ruyter, Chief Executive Officer: Eskom, replied the question was whether or not the Board chairperson had been aware of the meeting, and not the documents. The answer was in the affirmative for the meeting.

The Chairperson said the question was posed by himself. The transcripts could be pulled out, so there was no debate on it. It was unacceptable to have this kind of mess. Eskom could not operate on the basis of sidelining the Board. The Board was the accounting authority, and if it was not available then the entity should not attend at all. The responses about structure were not satisfactory. It was a clear indication of a toxic environment and it did not inspire confidence that in the midst of the Eskom crisis that everybody was working together. He asked for the presentation to begin.

Mr Makgoba replied that Eskom had prepared a very long document and delivered it to the DPE on 25 February. This document had been prepared jointly by the Board and the executive. According to the protocol, Eskom had delivered documents to the DPE, which then delivers it to the Committee. The Committee had received it only on 2 March. Members required a minimum of 10 days to be able to read documents. The protocol system had let everyone down.

Eskom Presentation

Mr Makgoba said the Committee had requested Eskom to expand on the details of seven questions, and this would be dealt with in the presentation by the Chief Financial Officer.

The Board had been appointed on 20 January 2018. and since then it had had 36 meetings. This did not include meetings held with the DPE. The commitment of the Board should not be questioned, as it had done the best it could within its capacity and capability to rescue Eskom. It had agreed to deal with the issue of load shedding and plan reliable electricity supply to the country. The first step towards unbundling had been achieved. Mr de Ruyter had to restructure the executive so that it could carry him through when he delivers the mandate of restructuring Eskom. The Board would provide oversight and not involve itself in operational matters.

The Board believed that Eskom had a plan and its implementation required support from the Committee. Everyone in the country was worried about the debt of Eskom. All of the great nations of the world were not created by money, but by ideas. Ideas were what sustained the country. Eskom’s idea and plan needed to be followed. Investors would then come back into the country. The operations of Eskom were the foundation of sustainability, investment and the economy. One could not create a growing economy out of a mess.

Mr Jan Oberholzer, Chief Operating Officer (COO): Eskom, said the Committee had visited the Medupi and Kusile power stations in 2019 and provided Eskom with 23 issues that needed to be addressed. Eskom would submit a quarterly report by the end of March dealing with these issues. On the new build, a feasibility study had been presented into the economic and technical prudency of continuing with the construction of the Medupi and Kusile projects, and had been approved by the Board.

At Medupi, there were six units, of which five had been put in place for commercial operation. The sixth unit had been synchronized to the grid, and was planned to be put up for commercial operation by the end of 2020. The reason for this was because the unit was being used extensively to assist with the capacity of the country. It needed to be used at this point in time to provide electricity. All of the capability testing could not be done as a result of this.

At Kusile, there were six units, of which one was in commercial operation. Units 2 and 3 were synchronized to the grid. Unit 2 had had a significant setback because the induced polarisation (IP) fan had come out of the foundation. Units 2 and 3 would be in commercial operation during this year.

The Chairperson asked him to point to the presentation, rather than provide an overview.

Mr Oberholzer said Unita 4, 5 and 6 would not be in commercial operation this year, but Unit 4 may be in operation in 2021. The two remaining units would be in operation only by 2023. On the construction finances, 87% had been invested in Kusile, and 95% in Medupi. Eskom was financially able to finish these projects. On defects, an overview would be provided to the Committee now, and more details would be submitted at a later stage.

Discussion

Mr Hadebe said the document indicated that Units 5 and 6 would come into commercial operation in 2021, yet Mr Oberholzer had indicated it would be only in 2023. Were they looking at the same document?

Mr Oberholzer replied that the document indicated synchronisation to the grid. Only if that was successful would electricity be available.

Mr Hadebe said the document indicated it was for commercial operation. Were they reading the same document?

Mr Oberholzer replied it was not the same, and apologised.

The Chairperson said Eskom was not starting on a good foot. The documents had arrived on 2 March, and the e-mail had said updates would be made to it. Was it correct that synchronisation came first and commercial operation thereafter?

Mr Hadebe said the document indicated Medupi would be in commercial operation by March 2020, but the presentation stated the end of 2020. The entire document as it stood contradicted what was being presented.

Mr Somyo said Members had made a point that there should be no reversal. There was a financial element to the year. If there was movement from 2021, to 2023 then there was a problem. The last time Eskom had been to Parliament, it was made clear to Members that no changes would be made. Members were now a bit surprised by the new timeline for completion.

Ms B Swarts (ANC) said Members should not be made to go and search their notes from the last time Eskom was here. The presentation was now speaking to the defects of boilers. Could they not finish one presentation first? Members were going to get lost by running back to their old notes. If the presentation was different to the document before them, then there was a huge problem.

The Chairperson said 2023 had been presented, but did not appear in the documents before Members. Could clarity be provided on this?

Mr Oberholzer replied that it ws incorrect to state the Kusile project would be complete in 2021. Eskom had put the year 2023 forward last year. 2023 had always been the date of completing its last units. 

The Chairperson said the document stated that unit 6 would be in commercial operation by October 2021. That was the issue. Could Eskom clarify this information for Members? Why would they submit an outdated document?

Mr Oberholzer replied the document should reflect a colour code for Units 4, 5 and 6.

Dr M Ndlozi (EFF) said the presenter was not inspiring confidence at all, because if he did not write the presentation, then the person who did should address the Committee. If he did write it, then it was just pure incompetence. The Committee was wasting its time. Was Eskom ready to brief Members or not? There were no colour codes for Unit 6. The document was in black, white and grey, but even with that explanation it was still inadequate. If there was another presentation altogether, then Members must be provided with it. Why was it written as 2021, if it was always 2023? Members did not have to accept incompetence or confusion.

Ms Swarts asked if the correct document could be put up electronically on the projector. Clearly there were two different presentations, because the dates and years were different. Eskom must respond to this either in the affirmative or negative. If Eskom had the updated document, it must be put up for Members to see. It was unacceptable for the presenter to say two sentences, and it was already wrong.

Ms B van Minnen (DA) said there were time constraints. Could Members allow Eskom to provide them with an explanation? Could the meeting proceed instead of Members repeating themselves?

The Chairperson said the varying date had far-reaching implications. It formed the basis of everything Members discussed. Everything hinged on a clear schedule towards completion, but now there was uncertainty and confusion. Why would outdated information be given to Members?

Mr Hadebe asked if Members were expected to process verbal information, or what was written.

The Chairperson asked Eskom to confirm the dates.

Mr Oberholzer replied the completion of the last unit in Kusile was confirmed for 2023, and the last unit in Medupi was confirmed for 2020.

The Chairperson asked if this could be updated properly and given to Members.

Mr Oberholzer replied that Eskom would submit a detailed report dealing with all of these issues by the end of March. He would do so in person and submit a complete report on the new nuild to the Committee. He took responsibility for the document being inaccurate, and sincerely apologised to the Committee.

The Chairperson said the new build section would be parked for now, and Members would come back to it so that no more time was wasted.

Dr Ndlozi asked if Mr Oberholzer had written the document that was sent to Members. This needed to be confirmed so that the source of the problem was established. Members did not want to be in the same place when they met again in March.

The Chairperson asked the Board to comment.

Mr De Ruyter replied that some blocks were green or yellow, or had no colour. Above the blocks were the original forecast dates, but when it had a green block, it meant commercial operation. If it was yellow, it meant synchronization must first take place. If there was no colour, it was way off target. On the blocks with blanks, the latest forecast was 2023.

The Chairperson said this information needed to be reflected in the document, otherwise it was subject to all sorts of interpretation. The Committee was exercising its oversight here. 

Dr Ndlozi said it was called incompetence.

Mr Somyo said Members needed to know whether the Board was aware of this. Were they aware of these changes, and would confirm these were the correct timelines?

Mr Makgoba said the changes presented by Mr Oberholzer were what the Board understood to be correct.

The Chairperson asked for the next presentation to begin.

Expansions and deviations

Mr Solly Tshitangano, Chief Procurement Officer: Eskom, said the presentation dealt with the details of all expansions and deviations. Soft copies of letters and responses sent by Eskom to the National Treasury (NT) had been provided to Members. Due to the abuse of deviations, National Treasury (NT) had introduced measures such as requiring its prior approval where there was single source procurement. The use of contingencies had been abused by Eskom. An example of this was where Mugazi had submitted an invoice for R8 million, which had been paid in advance, for the training of cooperatives. On the PB Africa contract, the original value had been R100 million. Commercial and technical presentations had been submitted to modify the contract. The modifications had continued from 2007 to 2017. Whether the deviations were used for their intended purposes or not, was what was under investigation. On the Alstom contract, the supplier would claim accommodation to be paid by Eskom. The investigation concerned what the contingency amount was used for. On the Stefanutti contract -- which was the company used at both Medupi and Kusile -- the reason for the modification was a cost reallocation, where money was taken from the contract value to the contingency amount.

Mr Tshitangano said the ABB contract was one of the most controversial contracts, because of the scope being taken from Alstom. They had said Alstom was not performing, and had taken that part of the contract and given it to another supplier. The internal argument was that because there was no time, three suppliers instead of seven were requested to submit proposals. The three suppliers were given an early work order for not more than R100 million, to start doing the design. When closing the bid, whoever was not appointed would still be paid for the work they had done. The legal argument was that this would result in irregular and wasteful expenditure. To avoid this, exemption from the NT was required. At the end of the day, the three suppliers had been requested to submit proposals. Only ABB and Simmons had submitted proposals. There was an argument about how much this scope was worth. The person who was in charge said it should cost only R80 million, but the other stakeholders were not happy with this amount and the person was removed. The new estimate was R550 million, being the first modification.

Mr Tshitangano said the Board had asked for historical reasons for issuing the early work order before it considered the second modification. The Board had said there was no reason to do the early work order and rejected the second modification. This showed a big difference between the new Board and the old Board regarding what was approved. ABB had appointed an international company as a sub-contractor. On the Tenova contract, they had claimed R10 million from Eskom. When the contract was awarded, they claimed to have been giving Eskom a discount, but immediately after that there was a modification. The contract value was increased by a huge amount.

In all of the big contracts in Medupi and Kusile, what had taken a lot of money from Eskom was the fact that it appoints a supplier who is given a site. The other contractor who had to first complete phase 1 had not done so, and the supplier had already been appointed. The supplier claims money for being denied access to the site. These amounts were paid through contingencies. On the Black and Veatch contract, when they were appointed, Eskom had not been aware of the extent of the work to be done. Modifications were done because the scope of the work was not clear. The supplier was requested to provide a proper scope of their work and a shopping list of what they needed. In the PB Africa and Black and Veatch contracts, delegation consent forms were used.

The Chairperson asked if these delegation consent forms were pre-signed. 

Mr Tshitangano replied these were examples of forms already signed. Internally, Eskom had rejected certain deviations and required them to be resubmitted. On the deviations rejected by NT, Eskom took action by following the condonation process and placing the contracts for two years instead of three. On the expansions rejected by NT, Eskom took action by issuing an inquiry to the market and testing the market. All the other deviations and expansions were provided to Members in an annexure.

Discussion

Mr A Lees (DA) said there was an extensive amount of money involved here. What was missing in the report were the motivations and details behind it. The presenter kept referring to them, but they were not in the presentation. Had it been submitted to Members?

The Chairperson said the Members had not received this information.

Mr Lees asked if this was part of the whole protocol issue.

The Chairperson replied in the affirmative. Eskom had sent it through, but the Committee had not received it. Who from the DPE was in attendance? Where were the Committee’s three lever arch files?

An official from the DPE replied the documents had probably been sent to the Ministry or the Director-General’s office, and this would be followed up on.

The Chairperson asked what was meant by “probably”. This was the last time the Committee would be dealing with the DPE on this issue. Eskom now had to submit documents directly to the Committee. Mr Tshitangano knew that each expansion and deviation was accompanied by a full batch of details, and Members were receiving only an executive summary now.

Mr Somyo said Members needed to know who had been involved in each contract and deviation. What drove the ultimate individual to take decisions and to sign them? These amounts were substantial and required more information. The presentation referred to “we”. Who was that “we” in terms of accountable individuals? He spoke in isiXhosa.

The Chairperson said the Committee would have to find time to deal with expansions and deviations, because the three lever arch files had not been received yet. Members would have to go through it very patiently to identify individuals.

Mr Hadebe said the entire presentation was shocking. It presented a picture of absolute looting and a complete collapse in the supply chain management (SCM) system. This was a danger to Eskom itself, and to the entire economy. How could one have a contract that was modified to 900% of its original price? Did Eskom not have professional teams within their projects, such as quantity surveyors and project managers? How did they allow such things to happen? On the Black and Veatch contract, the percentage increase was 1 180%. Were there not standard conditions that did not allow variation orders of more than 20% of the original price? For each and every contract there were standard conditions that could not be changed randomly.

The Chairperson asked if the audit team from Eskom was in attendance. The state of contract management had to be looked at, because it was part of the corrupt syndicate.

Mr Makgoba replied that Members must remember the situation concerned people who had no regard for the rules. The investigation would capture the details of what had happened. Eskom was here today to share its information that was captured in the three lever arch files. Crooks could not be changed once they had decided there were no rules.

The Chairperson asked whether the audit team had the function to pick up on these irregularities. Where was the audit team during this mess, and were they capable now of picking up on these things?

Mr Tshitangano replied that internal audit team was dysfunctional.

An official from Eskom replied that the entity needed to capacitate its internal audit function. It was a problem that Eskom had and was working to resolve.

Mr Hadebe said Eskom had a professional team for its projects. Where were all these quantities coming from? Had they not done an environmental impact assessment? Eskom had failed to give Members an assurance that it had put a stop to the mess that was currently happening. Moving forward, what were the steps in place? For now, Members saw only a complete collapse that was a danger to the economy of the country.

The Chairperson said the paper trail would indicate who did what and the modus operandi that had been pursued. Members would have to wait to discuss this. Eskom would have to answer on consequence management holistically. The presentation provided a very high-level summary. The issue was that each of the transactions were accompanied by fully-fledged documents. The Committee would have to come back to deal with expansions and deviations on its own.

Mr Hadebe noted the deviation that had been rejected by Eskom on the appointment of HKA. Had this company been appointed since 2006? Initially it was appointed as an international company which was later bought by HKA. Were they appointed on the basis of single source procurement?

Mr Tshitangano replied the reason for the rejection was because there had been a penalty.

Mr Hadebe asked if the company had been working for Eskom since 2006.

Mr Tshitangano replied in the affirmative.

Mr Hadebe asked why it had approached Eskom for deviations.

The Chairperson said the specifics were in the bundle, and Members would find a day to deal with expansions and deviations.

Mr Hadebe said the bundle would show Members how HKA was appointed in 2006 for it to be appointed in 2020 for single source procurement.

The Chairperson said the NT would provide information on the status of each transaction. It was difficult to ask Eskom, because the request would have come straight from the entity. 

Ms Swarts said Members would have many questions to ask if the three lever arch files had been provided to them. How did Eskom really operate? It had failed to receive a scope and allowed service providers to give them shopping lists. How did the Board actually approve these modifications? Was there a policy or some set of rules that allowed for it?

Mr Tshitangano replied that consent forms were used.

Ms Swarts said it was not a consent form, but rather a stealing form. Could Eskom provide Members with information on who signs them, where and how? The consent form allowed money to leave the system.

The Chairperson asked how the consent form worked.

Ms Swarts said Mugazi had been paid R8 million in advance. Was it a sub-contractor of Tenova at the time? Tenova was requested to pay Mugazi. Was the payment a modification? Would Tenova then submit a higher invoice to Eskom to get back the money it paid? How would Tenova get its money back?

Dr Ndlozi said he was not shocked that these companies were predominantly white-owned and international. Why had Eskom left these details out of the information it provided to the Members? It should have painted the colour of corruption. The presentation even left out the word corruption over the last 15 years. Who were the external auditors during this period, and what were their comments? It was good that these modifications were under investigation, but what should be investigated was the history in this country of auditors who were complicit in the corruption of state-owned entities. These people must be exposed, and the law must take its place. Who owns these companies? He asked Mr Oberholzer if he had been responsible for the approval of the value of the Black and Veatch contract increasing from R114 million to R14 billion? If so, why was he still the Chief Operating Officer?

Dr Ndlozi said he did not understand the question of the companies that asked Eskom for deviations but were rejected. HKA would not internally request one if it had not been done before, which meant there had to be an investigation here. Why was this company not under investigation? Had it been working for Eskom since 2006? Could one quantify how much Eskom had spent on its services? Had it been working on a single source contract? Members needed an intelligible report on the transformation of the entire supply chain management system. Were they using black-owned companies?

Dr Ndlozi said that when Eskom humanised corruption, it also had to racialise it. What mechanisms were being put in place? Were these companies compliant with the Broad-Based Black Economic Empowerment (B-BBEE) policy? The office of the Chief Procurement Officer (CPO) needed to be strengthened, otherwise it must report directly to the Board. Was the CPO pressurized by the COO? Mr Oberholzer was under oath in Parliament, so he had to answer this question very honestly. Had he ever recommended or instructed the appointment of any companies at Eskom? If so, what were those companies and why?

Mr Hadebe asked whether or not HKA was appointed as part of contract supervision, and if it had completely failed in its duties and responsibilities.

Ms Van Minnen said there was a concern at the high turnover of project and site managers. It appeared this was part of the problem of coordination. There was a project manager in Medupi who had started in April and left after a couple of months. In conjunction with what was happening here, what was Eskom doing to correct this issue to ensure there was proper oversight, and proper management of jobs and performance?

The Chairperson asked for the consent form to be explained first before full responses were given.

Responses

Mr Binesh Singh, Project Director: Kusile Project: Eskom, replied the consent form gave delegation for time and costs. It included the total value and date up to when the delegation was given. Before the completion date, the contract would have to go back to the governance structure. There was also a maximum value that could be spent. It would not be able to exceed a certain time or cost without a modification being done.

The Chairperson asked if it was pre-signed. 

Mr Singh replied no, and that it was part of the modification process.

Mr Tshitangano replied HKA were doing claims for Eskom.

Mr Singh said HKA had been brought in by Kusile, and the contract had expired in July 2019. It was now looking at only claims management, forensic planning and investigations into contractor claims. It was not doing any contractor supervision.

The Chairperson asked if they were still on site now.

Mr Singh replied in the affirmative. They were dealing mainly with Eskom’s disputes.

The Chairperson asked what work was being done.

Mr Singh replied HKA were still doing work under the panel contract. They were currently looking at some of the contracts and contractors that Eskom was in dispute with. They were also part of claims management.

The Chairperson asked if they were still working. 

Mr Singh replied they were working only on disputed claims. If a claim could not be resolved, it led to a dispute, and at that point Eskom usedthe services of HKA.

The Chairperson said if Eskom said the contract expired in July 2019, the assumption was that they were no longer there. However, they had said they were still working -- so were they still part and parcel of the Eskom fabric?

Mr Singh replied that some of the work HKA was doing was for the Special Investigating Unit (SIU). They had a lot of information that was assisting the SIU.

The Chairperson said HKA could not be a player and a referee. The SIU had to come with law enforcement agencies to explain to Members what work was being done by HKA.

Mr Tshitangano replied the companies mentioned were big and well-established entities. On transformation, the panel of suppliers Eskom appoints were compliant with the B-BBEE policy.

Mr Oberholzer said he could confirm and state that he had not been involved in the modification of R14 billion in the Black and Veatch contract.

Mr De Ruyter said the new executive could bring in the value of industry knowledge and experience. Part of this was to introduce new ways of working, and that included introducing potential suppliers. This did not mean there was an instruction going from the office of the Chief Executive Officer (CEO) to appoint any specific contractor. He had considered four potential companies who could add value to Eskom through their services. These included Ernst & Young Consulting, to develop a computer model to perform predictive maintenance on boiler failures, and Pragma Asset Management, because they had advanced maintenance capabilities. Initial discussions had taken place, but nothing was certain yet. The selected vendor would have to be appointed in compliance with the Public Finance Management Act (PFMA) processes. Various investment banks had approached Eskom with proposals, and they also had to comply with the PFMA processes. The office of the COO and the Treasury team of Eskom were involved, appropriate enquiries had been issued, bids assessed and appointments made.

Mr Hadebe asked for clarity on the HKA response. Had they been doing quantity surveying work?

Mr Singh replied in the affirmative. They had been doing the work of verifying claims. Quantity surveyors were used for that function, and were not physically out in the field doing measurements.

Mr Hadebe asked if that included the two power stations.

Mr Singh replied they were not in the field in the two power stations. 

Ms Swarts said the contract had expired in July 2019, and panels usually ran for three years. How long were HKA on the panel for? If the original contract expired, how did they move someone from a contract to a panel? What was the policy and process there? Were they invoicing for the work they were doing? Were they consultants or project managers? Did they invoice only once they had done work? How much had they claimed from July 2019 up until now -- for which work and where? Before Members ask the SIU themselves, were they benefiting from services Eskom was paying for? What was the relationship between HKA, the SIU and Eskom? How did the SIU request HKA to do work for Eskom? Were they also contracted to the SIU, or was Eskom paying them for work to be done for the SIU?

Dr Ndlozi said the fundamental issue regarding HKA was the abuse of the singular source process. Those who had been engaged in that process ought to be investigated over a long period of time. The investigation should conclude whether there was looting or not. Had HKA been on a single source contract before? If so, why was Eskom not investigating it? The CEO said he was introducing new ways of work in Eskom by introducing potential companies. Artificial intelligence was not new. What did he mean about having a company to help Eskom with its boilers? This idea was not new, and was exactly what ended up in corruption. Those companies feel indirect pressure. If one wants to build artificial intelligence in Eskom, one must open up the space for everyone instead of recommending a company.

Mr De Ruyter replied that artificial intelligence was not a novel concept, but it was novel to Eskom. The novelty lay in predicting boiler tube failure before it happened. Eskom needed to take advantage of the most advanced technologies to understand when a failure may take place, and to improve the maintenance of its structures. It would be novel in improving the reliability of the generation system.

Mr Somyo said he agreed, but what was being asked was how Eskom was going to get it. Was the only way to get it when the CEO introduced the potential company?

Mr Hadebe said it was one thing introducing an idea, but bringing in a prospective company behind that idea was a problem.

Dr Ndlozi said the CEO’s response was nonsense. It was a deliberate misinterpretation of what had been asked. If he was recommending companies, then that was not new. Artificial intelligence was a great idea, but could he open it up to everybody in that space? What about companies that did not have access to him?

The Chairperson said the concern was that ideas were introduced through recommended companies. It must be consistent with the PFMA.

Mr De Ruyter replied that a company becomes aware of new services by opening itself up to engagement with experts, the offering of services, and then going through an entirely ethical procurement process. If Members were implying that he had contravened the PFMA, then he was happy to engage and rebut those allegations. He had not acted unethically and did not appreciate the implication that he had.

The Chairperson said nobody was disputing the need to bring about innovation at Eskom, but the issue was for it to be coupled with the identification of a company. It took them back to the issue of single source procurement.

Mr Somyo said the Chairperson had asked earlier about the internal audit. Was there a risk unit? This covered the issue, because the unit could advise the executive on the potential risks of such trends. Members were concerned that the CEO was the highest office, and it already had a preference for companies.

The Chairperson said Members would take this issue up with the Parliamentary legal team to advise the Committee on the correct approach, so that its recommendations were informed correctly.

Financial issues

Mr Calib Cassim, Chief Financial Officer: Eskom, said the presentation dealt with financial questions previously posed by the Committee, which Eskom could not answer.

There was a combination of factors required to get Eskom to financial sustainability. Currently, it could not meet its commitments with the cash it was generating. Collecting revenues that were due to Eskom was a key element. It needed to ensure it performed more efficiently to bring down its cost base. In the support it had received over recent years from government, the R60 billion loan had been converted into equity. This special appropriation had helped to deal with the debt, but without the other elements it did not make the entity financially sustainable.

On the obligations in respect of the servicing of the debt, this was made up of the repayment of the value borrowed, and the interest associated with this borrowing. Eskom had introduced voluntary separations, and R400 million had been set aside to fund this. The debt service commitments were about R70 billion, yet Eskom was generating only about R30 billion. The shortfall of R50 billion was covered by equity support from government which allowed Eskom to continue operating. Load shedding was a key stumbling block in the country.

On the cost of unserved energy, it varied around R75 per kWh. The latest study showed R84 per kWh. If the operational outlook was more predictable, it allowed users to make alternative plans.

Discussion

Mr Somyo commented on the current assets, which had built up against the current liabilities. What did that signal to the organisation in comparison to what it saw as a total asset base?

Mr Cassim replied for financial sustainability, a key indicator would be that one’s current assets were twice the amount of the liabilities. This clearly illustrated the financial distress of Eskom, where its liabilities exceed its assets. Eskom required equity support.

Mr Somyo asked what Eskom was doing to arrive at an adequate standard going forward.

Mr Cassim replied that Eskom was taking steps to have better working capital management and to better control inventory management. It believed there was an opportunity to become more efficient and to get better working capital. On the current liabilities, it was about lowering debt over a period of time. There would be a combination of factors to solve the balance sheet.

Mr Somyo asked if it was possible for Eskom to have a documented plan to get closer to the required standard.

Mr Lees said the presentation showed that Eskom was not paying its creditors within 30 days, and this was adding to the deficit in the current liabilities. Was there a lot of pressure from creditors? Who were they not paying? It was a fact that money was not coming in, and municipalities were not paying Eskom.

Mr Cassim replied Eskom was adhering to its commitments to suppliers and lenders. It was committed to dealing with the cash flow issues. These requirements could be met only with the support Eskom currently received from government. The current liabilities were being paid from the equity support.

Mr Lees said this raised other questions. Equity support was supposed to service the debt costs. If that was the case, why was there a disparity between assets and current liabilities? What was in current liabilities? Was there a provision for the service of debt costs?

Legal issues

Mr Bartlett Hewu, Interim Group Executive: Legal and Compliance, Eskom, said the presentation dealt with legal questions the Committee had posed, but Eskom could not answer.

On the status of persons whose cases had been closed, two former employees were convicted of fraud and were sentenced to two years’ imprisonment. The case of one employee was provisionally withdrawn from the court roll. The case numbers were provided in the presentation. It was important to conduct a proper investigation before going to court.

On lifestyle audits, only high-risk individuals had been transferred to the SIU for further investigation. The SIU was able to subpoena bank statements directly from the bank.

On the failure of high ranking officials to disclose business interests, each and every employee of Eskom ought to declare their interests. It was an ongoing process through the ethics office that was driving compliance.

On allowing people to resign when implicated in wrongdoing, the Basic Conditions of Employment Act and the Labour Relations Act applied. A list of these individuals had been provided to Members.

Discussion

Ms Van Minnen asked what the amount of fraud had been for the two employees sentenced to prison, because two years’ seems like a very light sentence. On the provisionally withdrawn case, was the reason due to the finalisation of the investigation? On the list provided to Members, how many would become civil or criminal cases? This could continue even when individuals resigned.

Mr Hewu replied there were still ongoing investigations being conducted by the SIU and the Hawks. On the amount involved, Members would be provided with a clear response at the next meeting. On the case provisionally withdrawn, it was due to the ongoing investigation and insufficiency of evidence before court.

The Chairperson asked if there was any particular reason why individuals listed as number 5 and 6 were indicated by name, but the rest of the list did not contain names. Members wanted the names to appear so that individuals were known.

Mr Hewu replied the presumption of innocence applied before a suspect or accused person appeared before court. Once the suspect was formally charged, the names would appear. If the Committee preferred to have these names, Eskom was happy to share them in camera. 

The Chairperson said the individual under number 5 had resigned immediately when investigations were pending. The individual under number 13 had taken early retirement. Was that still a matter of investigation?

Mr Hewu replied that was correct. He would add a column to the list indicating whether matters were still pending and being investigated.

Mr Lees said the whole list contained individuals that had resigned. Once they had resigned, were they saying that disciplinary proceedings could not proceed? The recovery of damages in civil cases could still happen. Why were the names a problem when they had resigned, even though investigations were still pending?

The Chairperson said he did not understand why number 5 and 6 were listed by name, and the others were not.

Mr Somyo said at a certain point, in pursuing civil and criminal cases, the names cannot be disclosed because individuals have not been formally charged. When individuals are formally charged, the names can be disclosed. Could Eskom provide a list of individuals who hac resigned, and the status of each matter?

Mr Hewu replied a column would be added, and the status indicated. The audit executives were cited by name. Where Eskom may recover financial loss from individuals, their names were cited. On numbers 5 and 6, there had been a formal arrest, the individuals had appeared before court and the case had been postponed until May. There were formal charges.

Mr Somyo said a high level of secrecy existed within departments and entities. At a meeting with the Department on Correctional Services, it had provided Members with a long list of such cases where some individuals were named and others not. Members realised that the Director-General had been sitting in the meeting the whole time, and the name had been scratched out. Just yesterday, a report had been handed down, and the name of the individual had been scratched out because the individual was sitting exactly where the Chairperson was sitting now. He spoke in isiXhosa. Eskom must submit the names so that Members could have a look at them.

The Chairperson said was important to specify, because Members were concerned that people were resigning but no action was being taken against them. There was a case where the CFO of an entity had resigned and emerged as the new CFO of a department. The Committee must be able to follow individuals once they resigned. He then asked Mr Oberholzer to present.

Mr Oberholzer asked if he could come back to Members with a detailed presentation personally signed off and prepared by him. He had not seen the presentation before the Members, and apologised sincerely to the Committee. 

Ms Van Minnen referred to the issue on insulation and air omissions, and asked if this could be included in the presentation when he returned to brief Members

Mr Oberholzer replied these were important issues, and would be included in the presentation.

The Chairperson said Members would deal with Annexure 7 next time, and asked Eskom to make closing remarks.

Concluding remarks

Mr De Ruyter thanked Members for their time. Management was committed to improving the ethical climate within Eskom and had taken firm steps to restore corporate values. The value of integrity had been undermined by state capture and corruption. Restoring integrity would be a big challenge, and the Committee was requested to support Eskom in this endeavor.

Mr Makgoba thanked the Committee for the care and concern raised. Members had asked important questions and shown a better way to deal with issues rather than keeping them under the rug. In South Africa, there was a habit of wanting to bond with each other, rather than telling each other the truth. The Committee had been robust in its oversight. The Eskom team was thanked for the preparations they had made.

The Chairperson said in the budget vote last week, provincial grants had been cut for human settlements and basic education so that Eskom could get money. It could not be a blank cheque, because the lives of people had been put on the back banner so that Eskom’s plight could be salvaged. The guarantees Eskom was receiving must be met with the prevailing reality that its collapse was the collapse of the country. It could not be business as usual. Government could not keep giving financial solutions to the non-financial problems of Eskom.

Members were concerned about the benefit of the country. Eskom must do its work within the parameters of the law and the NT’s recommendations. When Members receive the report at the end of this month, they want to see concrete steps towards consequence management. If one loots, one must go straight to jail. The Committee was going to be a pleasant irritation until Eskom gets it right.

He spoke in isiXhosa about load shedding. Load shedding could not continue. The Committee would meet again to be briefed by Eskom on its debt. Once Members had read the three lever arch files, deviations could be discussed.

The Chairperson adjourned the meeting.