Eskom chief André De Ruyter has been waging war against wasteful spending at the financially challenged power utility.
The CEO’s clampdown on preposterously expensive procurements of basic goods and other equipment has been highlighted in several reports over the last few months.
Among the products he and his team found to be purchased at significantly inflated prices were single-ply toilet paper rolls worth around R4.99 bought for R26 each and black refuse bags worth R2.99 purchased for R51 each.
In a more recent report from News24, it was revealed De Ruyter had personally acted against an employee after the discovery that they had spent R80,000 on protective knee guards that cost just R300 at Builders.
Eskom incurred these expenses despite its Procurement and Supply Chain Management Procedure stating that all prices paid needed to be market-related to minimise the total cost of ownership.
One of the big reasons for irregular expenses previously noted by De Ruyter is a free-text-based system for low-value purchase orders that don’t require a contract.
Before De Ruyter’s appointment, transactions of less than R5 million could be performed using this system.
“Under such a system, items do not have to be purchased from a list of suppliers who have been pre-approved as cost-effective,” De Ruyter explained.
“Instead, items can be purchased from any supplier, and at any price, to avoid contractually agreed prices, often for corrupt purposes.”
“The abuse of the system, therefore, created a clear opportunity for corruption and fraud and resulted in Eskom paying significantly inflated prices for various goods.”
The table below summarises some of the instances De Ruyter and his team picked up, wherein several products and services were purchased at substantially inflated prices.
|Inflated procurements at Eskom|
|Product||Actual price||Free text price||Difference|
|1-ply toilet paper||R4.99||R26||421%|
|Black refuse bags||R2.99 (10 for R29.99)||R51||1,606%|
|Power station components|
|Hydraulic oil pump||R294,669||R650,044||120%|
In an update on its governance clean-up campaign in Eskom’s 2021 Integrated Report, the utility said the continuous review and monitoring of purchase orders and procurement plans following revised procurement procedures had limited the abuse of low-value procurement mechanisms.
Local purchase orders now only allow for the procurement of goods and services of less than R30,000 (R26,000, excluding VAT) without a contract.
The change has resulted in local purchase orders declining from 39,552 in 2020 to 29,221 in 2021.
It has also implemented several other measures for improving procurement oversight, including:
- Establishing a weekly functional leadership steering committee, chaired by the Chief Procurement Officer (CPO), to monitor progress and challenges on Public Finance Management Act (PFMA) related matters and procurement plans.
- Appointing procurement heads in Generation, Transmission and Distribution to establish contract management offices and improve the quality, accuracy and completeness of PFMA reporting.
- Collaborating with the Assurance and Forensic Division and the Loss Control Department to investigate procurement and PFMA-related issues identified through reviews, complaints and whistle-blowing mechanisms.
- Monitoring of internal condonation processes as well as condonations submitted to National Treasury.
Public enterprises minister Pravin Gordhan recently provided details on Eskom’s spending on recurring consumables, revealing how these measures have born fruit.
In response to a question in Parliament, Gordhan revealed Eskom had spent 47% less on items like bottled water, milk, toilet paper, and cleaning products and implements in 11 months of its 2021 financial year compared to the year before.
Adding another month’s average spend (about R1.42 billion) for the 2020/2021 financial year showed the total for the year would still fall far short of the previous figures.
According to the minister, Eskom had introduced various mechanisms in the procurement system, including price check, e-auction, and cataloguing, to ensure that the principle of obtaining market-related prices is adhered to across operating units.
The table below shows how the total procurement prices for each of these products.
|Recurring consumables spend – 2020 vs 2021|
|Category||FY 2019/2020||FY 2019/2020*||Difference|
|Cleaning products and implements||R6,456,299||R5,873,443||-9%|