The case against Eskom’s “delinquent” former management

Public energy provider Eskom has come under intense scrutiny in recent years due to a variety of issues, including load-shedding and its massive R450-billion debt.

According to Corruption Watch, at least part of this can be attributed to corruption and extreme mismanagement that took place in the mid 2010s under allegedly-compromised executives.

Corruption Watch submitted legal papers in November 2018 which outline what appears to be a damning case against former Eskom management.

The watchdog seeks to have the accused former Eskom board members declared delinquent.

Here are examples of the alleged malfeasance which Corruption Watch accused Eskom’s former management of committing.

Pamensky’s alleged dual loyalties

Mark Pamensky was appointed as an independent non-executive director on the Eskom Board on 11 December 2014, and served on both the Investment and Finance Committee, and the Audit and Risk Committee.

While on the Eskom board, he also had business interests in entities such as Shiva Uranium. Tegeta, which was owned by Gupta-owned Oakbay, held a 20% share of Shiva Uranium at this time.

Pamensky is alleged by Corruption Watch to have been a “conduit for the flow of privileged information between the companies and members of the Gupta family”.

This email was allegedly sent to members of the Gupta family and their associates by Pamensky:

We need to move fast on certain asset acquisitions as Sibanye is picking up all these assets at low valuations which is what we should be doing.

Another email allegedly said:

We will have the shiva uranium board sorted out by Tuesday. This will allow us to vote on the Tegeta acquisition with no related parties.

“Pamensky failed to recuse himself from decisions in which conflicts of interest arose between his various stakes in business. Such failure to recuse himself aids in his willingness to assist in dubious transactions,” said Corruption Watch.

Eskom’s relationship with Tegeta

Eskom is also alleged to have contracted “for unsuitable coal on uncommercial terms” with Gupta-owned Tegeta.

A Treasury Report found that no evidence was available of Tegeta having complied with Eskom’s requirements regarding the submission of certain necessary information, including financial statements and tax certificates.

Former Eskom CEO Brian Molefe was sent the Treasury Report on 12 April 2016 and was instructed to table it before the Eskom board by 30 April. However, he only offered to table the report five months later – on 27 September 2016.

In November 2015, Eskom also received a report from PWC that outlined how Eskom’s procurement of coal from Tegeta was improper due to several failings during the procurement process.

PWC was not provided with a Commercial and Financial evaluation report, nor was there evidence that either the Primary Energy Department or any board committees were consulted.

Rather, PWC said it was evident that negotiating team leaders were in full control of the procurement process.

Optimum Coal

Eskom had a contract with Optimum Coal for the supply of coal to its Hendrina power plant. However, according to Corruption Watch, Optimum was supplying this coal at below cost value, and was therefore losing money.

The Eskom board refused to accept an agreement that had been drafted with input from both Eskom and Optimum, instead saying that the matter needed to get the consent of the acting group executive – Molefe.

Molefe refused, and this ultimately resulted in Optimum falling under severe financial pressure, eventually forcing its sale.

As a result of Optimum’s need to be sold, the Guptas were able to purchase the company at a drastically reduced rate.

Financial mismanagement

Corruption Watch also outlines several instances where the board was shown to have been grossly negligent in terms of Eskom’s finances.

An example of this was the fact that irregular expenditure for the financial year ending 31 March 2017 amounted to R2.9 billion, including expenses that were incurred while following incorrect tender processes, without the correct approval, and in breach of the Preferential Procurement Policy Framework Act 5.

In contrast, irregular expenditure had “only” amounted to R348 million in the previous financial year. This significant increase in irregular expenditure resulted in an audit opinion being qualified for Eskom for the first time ever.

As a result of this audit opinion, Eskom had to default on two other loans that totaled R17.2 billion, further damaging its financial situation.

The future of Eskom

Corruption Watch executive director, David Lewis, told MyBroadband that the extent of corruption at Eskom is exhaustively documented.

He added that while Eskom has made efforts to rid itself of corrupt leadership, it still faces an uphill battle.

“They’re doing what they’re doing, but corruption is not the only problem that they face – they also have enormous financial problems caused by mismanagement and corruption.”

Now read: Load-shedding remains a major risk – Eskom CEO

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The case against Eskom’s “delinquent” former management