Eskom fracas is a nightmare for South Africa

Is the embattled power utility Eskom going to have two chief executives at the same time?

After being in the job for just six months, in mid-March chief executive Tshediso Matona and three other executives were suspended for three months. Announced by Eskom chairperson Zola Tsotsi, it appeared to have the support of Public Enterprises Minister Lynne Brown.

Then, within 19 days of announcing the sudden and dramatic suspensions, Tsotsi too was removed from his post.

An inquiry into various problems at Eskom was meant to be headed by the business turnaround consultant Nick Linnell, but he was dropped a few days after Tsotsi resigned because of fears that due process was not followed in appointing him.

The inquiry will now be led by the legal firm Dentons.

Restored confidence

In mid-April Brown appointed Brian Molefe, Transnet’s chief executive, as acting Eskom chief executive. With experience as the head of the Public Investment Corporation he has restored some confidence in the utility.

But Matona’s suspension ends in a month, opening the way for Eskom to have two chief executives.

“They will strike a deal with Matona; every state-owned organisation does that these days,” says Doug Kuni, an independent energy consultant.

The possibility exists that Matona will not be keen to play nice.

He is precluded from speaking to the media during his suspension, but in court documents he says many of the issues the investigation intended to deal with occurred before his appointment and therefore would not require him to step aside.

He claims the decision to suspend him was not made at a board meeting but rather by a subcommittee of the board following an extraordinary meeting.

Tsotsi, in responding court papers, affirmed that Eskom’s governance subcommittee took the decision.

Lost control

Following a recent visit to South Africa, British-based analyst Peter Attard Montalto said it appeared that the Eskom executive and treasury had lost control of procurement, and that the attempts by Matona and the three executives to regain control had led to their suspension.

An industry source with knowledge of the internal machinations confirmed this view. “It was a procurement side problem, and contracts were not being rolled out in a timely manner.

“Matona was sticking to the books, but it frustrated some people.”

But one senior Eskom employee says that was not the likely cause because “the new board takes no nonsense”.

Matona and the other executives were suspended after Tsotsi twice called for extraordinary meetings of the board. Three weeks later, Tsotsi faced his own vote of no confidence, deliberated by the board, and resigned.

Politically connected

The Mail & Guardian reported on March 27 that Tsotsi is politically connected. In an interview he said Jacob Zuma backed him: “The president was very clear that, if I think it is the right thing to do, then I must do it,” he said.

At the time Matona’s suspension was announced, Tsotsi and Brown avoided using the term “suspension” and emphasised that the investigation “is not directed at any particular individual or group but … merely seeks to ensure that the current challenges faced by the utility are addressed”.

In Matona’s urgent application to the Labour Court, in which he requests that the suspension be set aside, he describes it as substantively and procedurally unfair.

Matona says his removal was detrimental to the company, noting that on March 19 the credit rating agency Standard & Poor’s downgraded Eskom’s long-term credit rating to junk.

“This was expressly attributed to the respondent having suspended myself and other senior employees, which led the agency to have less confidence in the company’s corporate governance arrangements as well as in its standalone credit profile.”

He also says the notice of suspension, included in the submission to the court, made no allegations of misconduct but simply required the investigation to be “free of influence from leadership in the organisation”.

Executive committee performance

In Eskom’s replying affidavit, Tsotsi says the scope of the investigation would include the performance of the executive committee (exco), including Matona, and their role in handling “the crisis”. This included, among other things, cost overruns in the Medupi and Kusile projects that broke ground eight years and four chief executives ago.

Details from Tsotsi’s court papers indicate the investigation is more targeted: “The respondent holds a prima facie belief that there may be wrong-doing on the part of some exco members, including the applicant [Matona], in the discharge of their responsibilities to the respondent.

“Hence the need to conduct the inquiry while they are not performing their normal duties with the potential to undermine the investigation or pressurise employees.”

Tsotsi says: “It may well be that misconduct is uncovered during the investigation. However, at present, the board feels that some exco members may have been negligent and/or in dereliction of their duties in the manner that some aspects of the crisis at the respondent are being handled.”

Following the suspensions, but not mentioned in the available court papers, issues about questionable procurement procedures began to surface.

Diesel contracts

On March 15, the Sunday Times reported how companies relatively new to the energy sector had secured multimillion-rand contracts to supply diesel to Eskom, even though they did not satisfy the parastatal’s broad-based black economic empowerment criteria.

Business Day‘s report on March 25, a day after Eskom and Tsotsi had submitted the answering affidavit to the Labour Court, claimed “a call for proposals from auditing firms for a review of Eskom’s tendering processes may have been the trigger for the suspensions”. It said Tsotsi had “been accused of hijacking executives’ roles and undermining the incumbents, while he created an executive role for himself”.

The article also quoted independent energy analyst Chris Yelland as saying: “There have been suggestions that the suspensions of the key executives may be intended to block the appointment of the audit panel and resulting investigations, which may expose some of the inevitable conflicts of interests among Eskom board members.”

The report said Tsotsi had ignored all questions sent to him.

In a report published in the M&G on March 27, one of the executives suspended with Matona, Matshela Koko, was quoted as saying that Tsotsi “regularly interferes … in procurement”.

Electrics supply deal

The newspaper also reported how a dispute over a R60-million electrics supply deal had led to the suspensions of Matona and Koko, who had been at odds with Tsotsi over a deal with a Japanese supplier, Sumitomu.

Tsotsi has consistently denied interfering with Eskom’s executive decisions and procurement policies. He claimed, as reported by the M&G, Eskom executives were using some board members and Brown “in an effort to upend the inquiry so that certain issues will be covered up”.

Attard Montalto said this week it was hard to say who the board or Brown had been backing. “First, they backed an inquiry that appears now wasn’t necessary; they backed a chairman, who is now resigned. The only person they are clearly backing now is Brian [Molefe].”

Attard Montalto said he now believed more firmly than ever that the old executives would not return, but the question marks over Molefe’s tenure remained.

The ministry of public enterprise said it could not respond to questions relating to the progress of the investigation, and what would happen if Matona returned. It referred these questions to Eskom, which did not respond to these or earlier requests for comment.

‘Some other title’

However, upon the appointment of Molefe last month, Business Day reported Brown’s response to what would happen when Matona returned: “Brian will be here and we’ll find a way for Tshediso [Matona] to work with him; we’ll give him [Matona] some other title or something,” she was quoted as saying.

The report went on to say that, in hearing this, Molefe appeared to be surprised.

Dentons would not say whether the three-month timeline for the investigation remained in place. A spokesperson at the firm’s Cape Town branch said: “We are not furnishing anyone with those details at the moment.”

On January 15, Matona briefed the media on the state of the electricity system. He said the situation was dire and that load-shedding should be expected for many years to come. He added that maintenance had been neglected and even set aside because of events such as the 2010 World Cup and national elections.

When he took the acting chief executive position, Molefe said he hoped to put a stop to load-shedding by the end of the year.

Further proceedings between Matona and Eskom are pending at the Commission for Conciliation, Mediation and Arbitration.

Eskom’s media desk responded to say: “The inquiry is ongoing and the suspension of the executives has been realigned/extended to coincide with the completion of the inquiry.”

Republished with permission from the Mail & Guardian.

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Eskom fracas is a nightmare for South Africa