Eskom cannot pay: service provider

A former Eskom service provider is accusing the utility of engaging in litigation without any merit in an effort to avoid payment of at least R47 million for health, safety and quality management executed at its new build projects and other power plants.

The services have allegedly been scaled down, which raises concern of increased risk of component failure with possible costly damage and injury to staff, contractors and the public.

The service provider argues in court documents that Eskom is avoiding its obligations because it is in financial difficulty.

Shanaaz Moosa, a spokesperson for Khum MK Investments and BIE Joint Venture (Pty) Ltd told Moneyweb that Eskom has scaled down on these inspections since terminating the contract with the company late last year.

Moosa said without strict quality control Eskom runs a substantial risk of plant failure, especially at its new build projects Medupi, Kusile and Ingula.

She further warns that manufacturing, transport, off-loading, storing and fitting of components has to be done according to a quality management plan. This means a qualified inspector has to sign off at important stages of the manufacturing process.

She said if this does not happen it increases the risk and apart from the danger it poses, it compromises Eskom’s ability to claim compensation, should failure occur.

The company was appointed to a panel of five Eskom service providers in this field in 2009 and provided quality management services as and when Eskom needed it. Late last year, Eskom asked that the contracted tariffs be revised to considerably lower levels, Moosa said. The company could not comply with the request and the contract was subsequently terminated, although it was only due to expire in April 2014. No reason has been provided for the termination.

At the time the contract was terminated Eskom has already paid more than R1 billion to the company over the duration of the contract and a further amount in excess of R210 million was owed. The company brought a court application, but before it was heard Eskom agreed before the high court judge to pay R96 million. The parties agreed to refer all further disputes to urgent arbitration.

At arbitration in November the company sought the settlement of the amounts.

Eskom disputed the amounts and then for the first time raised the argument that the company was not the party it contracted with and therefore it was not entitled to any payments. This argument was only identified after Eskom fired its legal team and appointed a new one.

Eskom did indeed contract with the company’s legal predecessor, the Khum MK Investments CC and BIE International Engineers (Pty) Ltd Joint Venture. It changed its legal status to a company late in 2010 at the request of Eskom’s agent Sipho Tjabadi. Tjabadi was suspended by Eskom in September and is according to the utility, facing fraud charges. Eskom would not disclose to Moneyweb the grounds for the action against Tjabadi.

The company argues in court documents that it changed its legal status with Eskom’s knowledge and consent and alternatively that Eskom ratified it by continuing doing business and making payments to the company for several years.

When the matter came before the high court Eskom agreed to pay R45 million, but reserved the right to reclaim it should the case be settled in its favour.

The company again brought an urgent application for the balance of the outstanding amount. The arbitrator dismissed the case for lack of urgency.

In March the case was finally heard and the parties decided to separate preliminary issues that the arbitrator would hear before the company’s claims.

The arbitrator dismissed Eskom’s defence about the company not being the contracting party. In terms of the ruling R47.9 million was immediately payable.

Eskom is now taking the arbitrator’s ruling under review to the High Court. That means that the obligation to make the payment is suspended for the time being.

Eskom is bringing the application in terms of s33(1) of the Arbitration Act. The company points out that this section only provides for setting aside an award in cases of misconduct or irregularity on the side of any tribunal member.

It further applies only to private arbitrations and to misconduct with regard to the procedure, not the outcome. The company states that a commercial arbitration is final and not subject to appeal.

It accuses Eskom of bringing an appeal disguised as a review and says in court documents the application is in bad faith and aimed at avoiding payment. It refers to media articles about Eskom’s financial problems.

A company director told Moneyweb on Friday that a total of R295 million is still payable.

Moneyweb sent a list of questions to Eskom. It responded as follows: “Eskom is currently involved in a litigation with Khum MK Investments and BIE Joint Venture (Pty) Ltd and Khum MK Investments CC and BIE International Engineering (Pty) Ltd Joint Venture. The contract in question was terminated by Eskom effective 14 December 2013 in line with the conditions of the contract between the two parties. One of the Joint Venture partners, namely Khum MK Investments CC, has since been suspended from Eskom’s Supplier Database.

“A senior-management level employee was suspended in this regard and is subject to a disciplinary process which is underway. Given the litigation involved between the parties, we unfortunately will not be able to provide further details at the moment.”

Eskom has embarked on a severe savings drive after the national energy regulator (Nersa) awarded an 8% average annual tariff increase instead of the 16% Eskom applied for. This drive includes renegotiation of contracts with its service providers.

Source: Moneyweb