ESKOM Update on SCOPA recommendations following oversight visit, with Deputy Minister

Meeting report

Opening Remarks

The Chairperson welcomed everyone. He explained that the meeting was a SCOPA meeting and not a joint meeting with the Portfolio Committee on Public Enterprises as indicated in the Z-list (parliamentary schedule), although a couple of Members from that Portfolio Committee were in attendance. SCOPA would be exchanging notes with the Portfolio Committee.

The purpose of the meeting was to address the Report of the Standing Committee on Public Accounts on its oversight visit to Eskom and the Medupi and Kusile projects from 26 to 30 August 2019 and to consider Eskom’s response to the recommendation. SCOPA had sent the report to Eskom. The Speaker of Parliament had endorsed the report and forwarded it to Eskom. He was providing the explanation as his intention was to ensure that no one suggested the report had not been delivered timeously and that Eskom could not begin acting on it until the Speaker had endorsed the report.

The Chairperson also pointed out that Eskom had sent its presentation the previous day and Members had received it that morning. Eskom should exercise “stage 8 patience” with Members who had not had time to scrutinise the report. He asked that Eskom present rapidly as the presentation was simply about the report. He wanted the meeting to focus on the big issues.

He welcomed the CEO of Eskom, Mr Andre de Ruyter. He hoped that management had taken him through the engagements between SCOPA and Eskom. Eskom remained a key focus for SCOPA. It was not only about load shedding because there was a serious lack of consequence of management and operational issues at Eskom. There had been a total refusal by staff to be vetted as they should be. Medupi and Kulise remained a serious concern and a continuous strain on the fiscus with unprecedented escalations in costs for construction. SCOPA was not going to accept any shifting from the Eskom budget and timelines. It was Eskom’s budget and Eskom’s timelines. Eskom should not change. Notwithstanding what the President had said, Eskom remained the backbone of the economy and as Eskom was in a state of disarray and the consequences were unimaginable.

The Chairperson said that SCOPA would only support Eskom if it did the right thing. SCOPA’s support was conditional. SA could not afford the chaos that prevailed in SA as a result of load shedding. Load shedding since 2008 spoke to the failure to manage. Things had to change. SCOPA had no appetite for failure. He expected that the Committee would receive reports as and when required.

Mr B Hadebe (ANC) was seriously concerned or “crippled” by the fact that he had only received the report that would guide his participation and engagement on that day. He was a slow learner. He took time to process things. He was not sure how effective SCOPA could be in engaging with Eskom when he had only received a report that morning. When had Eskom known that it was appearing before SCOPA? Was it a deliberate attempt to limit the Committee’s engagement?

The Chairperson explained that Eskom had been requested to appear the previous week and that the report had been received from Eskom the previous day, but there had been a technical glitch in forwarding the report on the side of SCOPA. The meeting should continue as it was not an Eskom issue.

Mr Hadebe said that Eskom should expect load shedding from the side of the Members.

The Chairperson welcomed the Deputy Minister.

Mr Phumulo Masualle, Deputy Minister of Public Enterprises, apologised for being a little late. The meeting was intended to address feedback from ESKOM and so he would hand over to ESKOM immediately.

The Chairperson summarised the recommendations presented by SCOPA after its oversight visit:

Vetting of all supply chain practitioners, managers and the board must be implemented immediately, for the head office as well as other centres where procurement takes place, and a report on this must be sent to SCOPA within 60 days from the adoption of this report by the National Assembly;

The ‘Take or Pay’ system must be revisited and the cost-benefit analysis must be conducted to determine the viability of the system, and a report on this is sent to SCOPA within 60 days from the adoption of this report by the National Assembly;

Weighbridges and off-loading facilities must be constructed at Kusile to transport coal from the mine to the plant. Negotiations for the development of the adjacent New Largo coal field must be fast tracked and concluded without further delays. A monthly executive summary on progress in this regard must be submitted to SCOPA;

Internal investigations must be speeded up and finalised by the 31st of March 2020 – an update was required;

The internal audit unit must be capacitated and fully functional at head office and other cost centres so that early warning signs of corruption and maladministration are picked up.

That was the scope for the day but he informed the CEO that he could indicate if there were additional matters.

Absence of Eskom Board

Mr Andre de Ruyter, CEO, Eskom, thanked the Chairperson for the warm welcome. He appreciated the opportunity to give feedback on the oversight visit to Medupi and Kusile. He apologized for the gender imbalance of the team: Bartlett Hewu, Acting Group Executive: Legal and Compliance; Bheki Nxumalo, Group Executive – Generation; Solomon Tshitangano, General Manager Procurement; Daniel Mashigo, General Manager Primary Energy.

The Chairperson queried the absence of Eskom board members.

Mr de Ruyter explained that, having regard for the fact that the oversight visit had been conducted by executives or officials of Eskom, the chairperson of the Eskom board had sent his apologies and had asked to be excused from the meeting.

The Chairperson found it unacceptable that the board was not there as the board was the accountable authority. The accounting authority was the board. He had not been consulted. It was dereliction of duty on behalf of the board. It was common cause that the Accounting Authority had to appear before SCOPA. The Ministry and management were there – there was no excuse for the board not to be at the meeting. There had been a meeting with the board at the conclusion of the oversight visit. What did the board consider that to be? Was it not considered part of the oversight visit? He had not received any correspondence from the board.

Mr S Somyo (ANC) agreed that the board was wrong and its absence was unacceptable. The oversight visit had ended with a meeting with the board and so the board was part of the oversight visit. The board remained accountable. It was not acceptable that the board was not at the meeting.

Mr Hadebe was covered but asked if only the chairperson of the board had offered an apology.

The Chairperson stated that no apology had been received. The Committee only knew what it had heard from the CEO.

Mr Hadebe asked if there had been a conscious decision by the board not to attend. He asked if there was any confusion as to whether the board had to attend.

Ms N Mente-Nqweniso (EFF) asked that the CEO respond to the question.

Mr de Ruyter stated that the interim board chairperson had indicated that he had elected not to attend. That was where the matter had ended. He had had no further interaction with other members of the board.

Mr Hadebe asked if there was an explanation as to why the interim board chairperson did not attend.

The Chairperson stated that it was a question for the board and not for Eskom management. The matter did not end there because the board had, for all intents and purposes, told SCOPA to go and jump off the nearest cliff. That was what the action indicated.

Ms Mente-Nqweniso was not comfortable with the response that the board chairperson had elected not to come. Was he aware that he should attend the meeting? He was the ultimate accounting officer of Eskom. He should understand his job description and so whether he had started a minute ago or a month ago, he should be in the meeting. She informed the Deputy Minister that the board chairperson had to write an apology to Parliament. He could not undermine Members in such a way. He could not say that he was excused because he was not there at the time. He did not get to elect when he came to Parliament. He could not divorce himself from responsibility because he was not there, otherwise he should divorce himself completely from Eskom, its salary and perks.

Ms B Swarts (ANC) said that the Eskom board was telling the Committee to jump into the river. It was a very lame excuse. It should not become a habit that people ignore SCOPA. The CEO had to go out and call the chair so that his apology reached the Committee before the meeting ended. The Committee could then consider his reasons for not appearing. Even if he had started at Eskom the previous day, he had to be there. She told the Deputy Minister that the board chairperson did not respect the Committee.

Mr A Lees (DA) noted that there was general consensus about the disappointment that the board was not represented in the meeting. Ms Swarts had indicated a way forward. He suggested that the Committee Chairperson write a letter and ask for an explanation

Adv S Swart (ACDP) agreed that the Chairperson should write a letter and ask for an apology.

Mr Somyo said the Committee could not ask for an apology. The board had acted in dereliction of duty and responsibility and the letter should indicate that, but the meeting had to go ahead as the Committee needed to know the response to the recommendations. Had the findings been acted upon? The Committee’s responsibility was to determine whether Eskom understood its responsibility to the nation, although the absence of the board seemed to indicate that it did not. The Committee appreciated that the CEO and his team was in attendance. The ministry was in attendance, but the board was not.

The Chairperson said that the bottom line was that the action of the board was reckless, irresponsible, and careless and not consistent with it meeting its fiduciary responsibilities, including, but not limited to, accounting to Parliament. He would not be begging for apology but he wanted an explanation as to why the board was not at the meeting.

Ordinarily, the Committee would have sent the delegation packing because there was no accounting authority present. However, given the seriousness of the issues, it was a vital to allow the presentation to empower the Members but there was still a missing link and that was the board. Interim boards were a particular problem because people walked on egg shells as they wanted to be appointed permanently. The members adopted the “hamba kahle” approach because they wanted permanent positions. When the Committee wrote its report on the hearing, it would report on its own interpretation of what the board was like but he believed that anybody that did not take Parliament seriously was not fit and proper to be on a board. He told the Deputy Minister that there was an urgency to appoint a permanent board.

The Chairperson noted the CEO’s point regarding the chairperson of the board but the chairperson was not the alpha and omega of the board and all members should be present. The absence of the board was indicative of the problem generally at ESKOM. He impressed on colleagues to continue with the meeting, given the seriousness of the issue. It was an exception, not the norm, to allow the meeting to go ahead.

The Deputy Minister agreed that the Committee was owed an explanation as to why the board was absent. He added that when he had learned the previous day that he was to attend the meeting, he had drawn up a checklist of things as he understood the modus operandi of the Committee. On the question of attendance was board attendance. He had got the thumbs-up regarding attendance by the board so he, too, wanted to know what had truly happened. He had been given assurance that the accounting authority would be in attendance.

The Chairperson stated that the letter inviting Eskom had left his office on 11 February 2020. He had subsequently corrected an error in the letter and it had left his office before SONA. He understood that his colleagues wanted to send Eskom packing and he reiterated that the meeting would ordinarily not go ahead. One could ask the PRASA board. SCOPA was pursuing action against that board so that those board members never sat on a board again. One could not want money from Parliament for a bail-out but when one had to account, one showed Parliament the middle finger.

Presentation by Eskom

Mr de Ruyter began with an overview. ESKOM remained grateful for the funds from the fiscus, but there was a need to restructure the balance as debt obligations stood at R70 billion. Goods and services would be a major area for savings, and Eskom was also pursuing municipalities that owed money to Eskom. Soweto payment rates had improved from 12%, the historic rate, to 25%. Eskom was reverting to maintaining the assets of the entity as per requirements of the Original Equipment Manufacturer (OEM) and so, there would be some load shedding for the next 18 months, but after that ESKOM would be able to supply energy going forward. Eskom was working with National Treasury and the Auditor-General to ensure more agile procurement. The new build defects at Kusile and Medupi would be resolved.

Mr de Ruyter assured the Committee that Eskom was bringing those who had misappropriated funds to book: two executives had been arrested the previous year. The President had spoken of dividing Eskom into three different divisions to accommodate the requirements of a changing electricity environment in SA. Eskom would not compromise on maintenance going forward and that was a key element in providing electricity. Procurement, within the PFMA, would have to contract with the OEMs. The power stations at Grootvlei, Camden and Hendrina would be maintained beyond the shutdown date to provide additional capacity of 500GW ph.

Certain key skilled positions would be recruited externally and Eskom was revisiting coal prices. It would continue with the 9-point plan. Coal quality and coal handling facilities were a key focus. Moving coal via rail rather than via road was critically important as coal loads that had been approved as good quality coal were being replaced en route with poor quality coal, in the middle of the night.                 

Procurement and contract management

Mr Solly Tshitangano, Chief Procurement Officer, Eskom, informed the Committee that the main challenge was contracts that expired and were not replaced in time which led to procurement through deviations, which was the source of problems in Eskom. Since the visit, Eskom had improved planning, established which contracts should be renewed and had reduced the turnaround time to deal with bid processes. The absence of functional controls in the sub-system prevented managers from identifying gaps and variations in price. The planning processes had been top-down and that would be changed. 1536 contracts had been concluded in the current year, both from open source and sole source suppliers: 47 contracts were with single source suppliers and 97 with sole source suppliers.

The majority of cases being investigated by the SIU involved expansions where processes were not correctly followed as a result of corruption, such as using sub-contractor.  Mr Tshitangano explained that, for example, contracts were concluded in 2005 for R100 000. The contracts had been modified in 2007 to R1.4 billion. In 2017, when the board was requested to approve a modification of R350 million, it was found that the contract stood at R4 billion, although no processes had been followed. The companies involved were PP Africa, and Black and Fish. The modifications at Medupi and Kusile were particularly bad. The combined value for project management and monitoring was for R20 billion. The board had established an investigation into the modifications over the years. There was no competition when contractors were sub-contracted which led to corruption and was the reason for the SIU investigations. Some of the modification rejected by previous boards or CEOs were presented to the new person in the hope that they would be approved.

The Chairperson asked from whom the requests came.

Mr Tshitangano replied that it was the Divisions that submitted the modifications.

Ms Mente-Nqweniso said that Committee should not have to dig for details. The report did not contain the required detail and so the Members could not interrogate the report. What were the consequences for the people who were involved? She did not see that the Committee could continue with the meeting without details.

The Chairperson requested that Mr Tshitangano provide the details of the variations and expansions.

Mr Tshitangano informed the Chairperson that he had the details but had not thought it would be required at the meeting.

Mr Somyo said that the Committee was concerned about Rands and cents and they were not being presented. The number was less relevant to him but the quantum was important to him. Detail would assist him. For example, Mr Tshitangano was talking of reduction, but against what? That was important. He was giving a story, not the detail that SCOPA required.

Mr Hadebe noted that the speaker was raising the issues as if it was “by the way”. Someone had to be giving approval to the deviations. There had to be procedures in place.  If that had not been happening, someone had not been doing his job. Had something been done to stop that? There were no milestones in place. SAP was an IT system. It did not have internal controls. It was not like a tree. He was talking about an IT system but not about what he had done to fix the subsystem. Members would be asking a lot of unnecessary questions because of the nature of the report. Was it deliberate that the Members only received the report the previous evening because the Members were limited in the questions that they could ask? Members would have stage 6 load shedding.

Ms B van Minnen (DA) stated that, during the oversight visit, the deviations had been a key issue. It was not so much the details but Members had wanted to know about the control measures. What was being done to ensure that when there was a deviation or variation, the work was properly assessed and there was a valid reason for the deviation or variation?

Mr Lees asked Mr Tshitangano how long he had been in the position and what he was doing to stop the behaviour.

The Chairperson said that the discussion was sounding as if the Committee had never been on an oversight visit to Medupi and Kusile and met the board. It was starting to sound like malicious compliance. Eskom was speaking in generic terms; it had to speak to detail. The record of the meeting with Eskom, in their own offices, would show that those matters had been raised by the Committee during the oversight visit. It became problematic because the controls were weak, and that was an understatement. Obviously, there were no systems if things could come back again. The issue of consequence management arose. If people did the same incorrect things over and over again and nothing happened to them, there was bound to be those kind of problem.  The section fell flat on its face in terms of showing the Committee that something had happened. They could not pretend that they had not had the discussion. 

He asked Mr Tshitangano to try again. He hoped that the CEO was noting the issues. He hoped that it was not the first time that the CEO was hearing that things were being re-introduced time and again. If it was, he was concerned. If it was not, he would be interested in what had been done about it. If someone was re-introducing something, it was because he was going to be corrupt about it. It was about the money. He hoped that the CEO was listening to the Committee’s concerns.

Mr Somyo noted that the Chairperson was trying very hard to keep the meeting going but the fact of the matter was that Parliament had published a report and since that report had been published, Eskom needed to respond to it. The point of the presentation was to show what ESKOM had done about the issues. Mr Tshitangano was not responding in detail. The responses hid the details of the infringements.  Not only did the systems remain, but the corrupt people were still there. There was a very active army seeking to destabilise Eskom, one way or another. The response received the previous evening did not help Members in respect of the matters raised in Parliament’s report. He thanked the CEO for coming but the detail was not there.

The Chairperson said that Parliament had sent 23 recommendations to Eskom. If he were responding, he would have tabulated the points in the recommendations and indicated actions what had been taken to address the recommendation. He explained that he would have looked at recommendation 6.1: “Contracts must be managed properly by suitably skilled and qualified people to ensure that expiring contracts are identified timeously and the appointment of contractors is done through an open market process” and then shown how the process of appointment of contractors had changed. The poor report was compounded by the absence of the board. Had the board seen the presentation?

Ms Mente-Nqweniso saw where the Chairperson wanted to go. Members wanted to fix Medupi and Kusile and to get rid of IPPs (Independent Power Producers) and not see any human resources laid off at ESKOM. However, she wanted to illustrate how the Committee would hit a solid wall if it went any further. The report did not tell the Committee who was being investigated, and for what. It did not reveal who was being taken to a criminal court, and for what. The report gave a figure that was a summary of each category. The report recommended vetting of staff but the report did not tell the Committee who was refusing to be vetted. It said that Trillian, Impulse and Deloitte had repaid the money but against what, how much was outstanding and when it would be paid was not indicated. The report lacked detail. SCOPA dealt with public accounts and public funds, not a story. The report was a story. SCOPA should receive a detailed report on each and every recommendation. Some of the people who had or should have received suspensions or warnings could be seated in the meeting and people with a lesser charge could have been dismissed. There were no figures on how much would be spent on Medupi and Kusile. How much was it going to cost to fix them? Not:” we are going to do maintenance”.  How much should Parliament give them and how much had been spent so far?

Mr Hadebe said that there was a question of whether or not SCOPA should continue the meeting. The leadership of Eskom and the board did not appear to be taking SCOPA seriously. The report simply said 18 months’ maintenance. No details were given about the current maintenance factor. In the past Eskom had given factors of 80% availability, 10% maintenance and 10% breakdown. The CEO just said 18 months but gave no details. Members did not even know if that included critical components. It did not inspire confidence. The country was faced with a serious economic challenge due to load shedding and all the Committee got was 18 months. Eskom had to explain the situation in detail to the Committee and to the public that was facing serious challenges as a result of load shedding. The former CEO had, on national television, said that he had established a team of engineers to manage the maintenance. To say that Eskom was lacking skills spoke contrary to the current staff complement where engineers had on average 10 to 15 years of experience.

The Chairperson asked him to calm down as he would come back to the way forward.

Adv Swart stated that deviations were at the heart of state capture as evidenced in the Eskom enquiry. Mr Tshitangano knew from his time at National Treasury that SCOPA required more detail and asked how much detail had been requested by the Committee. He did not want to see the Members’ time being wasted and he appreciated that detail was required, so perhaps the Committee could have a general discussion and then give Eskom specifics to respond to. Deviations had been a major issue in the previous Parliament.

The Chairperson replied that he did not need to tell Eskom professionals how to present a report. The meeting was not being held in a vacuum as there had been the visit to Eskom and there were 23 recommendations. He did not want to allow for an easy way out. He insisted that presenters had to provide details.

Mr Tshitangano said that he had all the details and he would make the details available to the Committee.

The Chairperson said that he should give the document with the details to the Committee assistant who could print the document and make copies for Members. The issue of deviations would be parked whilst Mr Tshitangano arranged to get the documents printed.

Investigations

Mr Barlett Hewu, Interim Group Executive Legal and Compliance, Eskom, informed the Committee that the SIU was investigating maladministration at Eskom. The Hawks were also involved and the State Capture Commission of Enquiry had been based at Eskom since October 2018. That was over and above Eskom’s internal investigations by the Assurance and Forensic Department, which was assisted by a panel of external service providers.

He noted questions raised by Ms Mente-Nqweniso and he committed to providing details in due course. He reported that since the meeting with the Committee at Megawatt park, 40 employees had been reported to SIU and the Hawks. The 40 included employees in New Build and Procurement at various power stations.  The names would be provided when Mr Tshitangano gave the details. Two former Eskom executives were arrested in December after a long investigation. Their case was serving before Specialised Crime Court and had a return date for the matter in March 2020. The forensic panel established in October 2019 was accelerating 261 cases that had arisen as a result of whistle blower reports.

The lifestyle audits had been conducted on the senior and top management levels. 370 people had completed the audits. High risk persons had been referred to the SIU that could access bank statements, etc. The results would be included in the Quarterly Reports. The lifestyle audits were to be filtered further down to all levels of Eskom. Eskom was working with the Department of Public Enterprises to keep costs of further lifestyle audits down.

59 dismissals had been effected as a result of fraud and corruption. Names and details would be included in the 20019/20 Annual Report. Cases included: 608 fraud and corruption cases, of which 354 had been completed. 107 disciplinary cases had resulted in 59 employees resigning or being dismissed. 40 cases had been referred to law enforcement agencies. Three had been closed. Names and details to be provided.

Mr Hewu agreed that there was a need to strengthen the Internal Audit process. The Chief Audit Executive had been found guilty of fraud and corruption and relieved of his duties.

Historically forensic reports had indicated employees that had been involved in corruption but not the supplier. That had been resolved as Eskom had established a Supplier Review Committee which was dealing with the relationship between suppliers and employees/ management/ board members to provide a more holistic report on any engagement between the two.

Eskom had received a favourable judgement against Trillion in the amount of R595 million but Trillion had appealed. Eskom had applied for a court order but Trillion had again failed to pay. The National Prosecuting Authority (NPA) had advised Eskom, and consequently the entity had brought liquidation proceedings against Trillion. McKinsey had repaid the funds with R99 million interest. Eskom had been served with a summons by Impulse International. Eskom was defending the matter and was requesting that all contracts with Impulse International be set aside. The B-BBEE Commission had made findings against Eskom. The B-BBEE Commission had set the contract with Dongfang contract aside but Murray and Roberts and General Electric was taking Eskom to court. Currently Eskom was engaged in a discussion with the B-BBEE Commission and Murray and Roberts. Eskom was claiming R207 million from Deloitte for irregular activities.

In next report, Eskom would provide the detail and attach the court papers and indicate what other matters were in the pipeline.

The Chairperson noted that Mr Hewu’s report was in response to recommendation 6.8 in the Committee Report on the oversight visit. The deadline for all investigations was the end of March so the presentation had been an update.

New Build: Medupi and Kusile

Mr Bheki Nxumalo, Group Executive Generation, Eskom, presented the New Build report. At Medupi power station, all six units had been synchronized into the grid. Five of the six units had been handed over by the construction team. Unit one would be handed over in the second quarter of 2020. At Unit one, the company responsible for clearing ash had declared hardship but the matter was resolved by using a different service provider. Medupi would be completed within the indicated amount of R145 billion.

At Kusile power station, all units had been synchronized into the national grid. Unit 2 would be moved to the Generation Division in the second quarter of 2020 and Unit 3 would be moved to the Generation Division in the fourth quarter of 2020. Units 4, 5, 6 were to be completed as per the contract. Cost to completion of Kusile remained at R161.4 billion.

Mr Nxumalo reported on actions taken in respect of recommendations 6.14 to 6.22, including managing the defects in design at Medupi and Kusile by raising the boilers by 12.5 metres.

Coal Issues

Mr Daniel Mashigo, General Manager Primary Energy, Eskom, informed the Committee that every ton of coal sent to Kusile was tested at source. ESKOM officials sampled and ensured a quality analysis of coal and so Eskom was sure that coal supplied met requirements. Every truck was tracked as cargos had been tampered with. A tamper-proof seal was placed on the canopy of each truck and companies were suspended if the seals had been tampered with. It was a pre-certification process to screen coal. Wherever coal was being delivered by truck was being monitored. It was labour-intensive but that would be managed by technology moving forward. Sampling of coal was managed electronically.

Mr Mashigo stated that coal contracts with Kusile had been re-negotiated to ensure a coal quality higher than required. All identified gaps had been closed. Eskom now held weekly contractual meetings with suppliers to manage the quality of coal. Third party laboratories were no longer used for testing coal as there were risks in that process and Eskom would build its own laboratory. Eskom was looking at the movement of coal by rail together with Transnet.

All coal to Medupi was conveyed via a conveyer and so quality control was easier. If coal did not meet the requirements in terms of quality, there were daily monetary deductions.

Negotiations with New Largo that had bought the Anglo mine were being re-negotiated for a long-term contract to deliver coal via a converter.

Mr Mashigo explained the take-or-pay clause. He added that 900 tons of synthetic gypsum would be produced for the production of rhino boards, etc. The market was very interested in procuring the gypsum.

The Chairperson noted that a bundle of details about the expansions and deviations had been circulated to Members.

Final remarks by the CEO

The CEO appreciated the attention of the Members. Many issues required addressing, including a culture of adherence to good commercial practice and that would require the support and vigilance of the Committee. Eskom took its obligation to supply energy very seriously. The focus in the report for that meeting had been on generation but he was happy to return and focus more specifically on other aspects.

Discussion

Ms van Minnen had wanted to focus on the expansions and variations as well as the misappropriation of funds and the investigations bringing people to account, but she understood that that report would be provided at the end of March. The current report was glib with very little detail.

Ms van Minnen raised the issue of the New Largo coalfield with Mr Mashigo. New Largo had been located there because of the coalfield but there had been years of musical chairs because of corporate ownership. There were currently hundreds of trucks coming onto site which raised the costs. Mr Mashigo had said something worrying about bringing in more coal on the roads when it came to Eskom. There had been so much conceptualisation and the running of a pilot phase as well as terminals for coal by road but, at the same time, Eskom was still negotiating with Seriti. She wondered if Eskom was negotiating with Seriti in good faith. Could Eskom guarantee the Committee that the negotiations were proceeding and there would not be a continuation in the delays? Why were there delays and why had negotiations started from the beginning again when the ownership changed? Was that coal field going to supply a proper amount of coal to that power station? The expansion of trucking would bring very serious problems to the country.

Mr Lees noted the debt and the burden that it placed on Eskom. If Eskom did not get the tariff increase and the R250 billion debt was transferred elsewhere, would that make Eskom financially sustainable, bearing in mind the required capitalisation?  Boilers had been wrongly designed but he did not see any solutions to the design flaws of the boilers in the presentation. He saw changes to ash handling and so on but was the design of the boiler never going to be fixed? He understood the design would never be fixed. The boilers were 13 metres too short.

He added that the country’s economy had been shut down because the only conveyer at Medupi went down. What was being done to ensure that never happened again? Were contingency plans not put into place? What was happening to the ash at unit 1? Was it being trucked out? There were no details of what was being done. The consumers, or bail-outs, were paying for the ash. Why were the issues not handled robustly and fixed?

Mr Lees agreed that the CEO was justifiably proud that payments from Soweto were being fixed but 25% was appalling. Was it 25% of current costs or was it 25% of arrears? If it was 25% of current costs, the Minister and government had to intervene as there was little that Eskom could do.

Mr Lees also asked about the three cases that had been closed. He asked that Eskom reassure him, and all South Africans that those three people had gone to jail? If not, where were they and what was the situation?

Lastly, Mr Lees asked about the coal from New Largo to automation. What was the cost there? Why were they still negotiating? Was it included in the cost to conclude Medupi?

Adv Swart noted that in a nearby meeting room in Parliament, the Reserve Bank was briefing a committee on the state of the economy and the Bank had stated that constraints would keep the economy low and the electricity factor was highlighted by the Reserve Bank as the major constraint. Electricity availability had had a factor of 66.9% in the previous year. Everyone was in agreement that the country was facing a major crisis. It was even highlighted in the State of the Nation Address. The meeting was focussing on the SCOPA recommendations but he was from the Portfolio Committee on Public Enterprise and he had found the presentation by Eskom very interesting

Adv Swart stated that he also sat on the Portfolio Committee for Justice and Correctional Services. He pointed out that Archbishop Thabo Makgoba had called for 2020 to be "the year of the orange jump-suit" and the Portfolio Committee for Justice and Correctional Services was concerned that the country was not seeing enough people behind bars. It might not be Eskom’s fault as the entity was working with law enforcement agencies. The Chairperson of SCOPA had said, the previous year, that more funds should be given to the NPA, SIU and the Hawks than to bail-outs and he agreed with the Chairperson. The recovery civilly was an issue. Funds had been claimed from Trillion but it had been struck from the court roll due to the involvement of the South African Revenue Service (SARS) and would be heard later. The McKinsey refund of R1.1 billion was recovered as, at the parliamentary inquiry into Eskom, McKinsey had said it would return the money and he, personally, had to appeal to the Eskom board to do something but eventually the NPA Assets Forfeit Unit had attached the funds and that was a problem because the funds went to the Criminal Asset Recovery Fund. Those were some of the things that Eskom could do to recover some of the money.

Adv Swart added that the parliamentary committees had to work together to assist Eskom. He was absolutely appalled at the status of Kusile and Medupi and the fact that there were design errors. Eskom was doing its best but the welding and the boilers were the main problem. Was there any guarantee of uninterrupted supply after fixing the welding and boilers?

Ms Mente-Nqweniso addressed the CEO’s conclusion: the obligations were over R70 billion and would increase. How had Eskom arrived at such an amount and what was it for? The Committee needed to deal with the balance sheet of Eskom. What was its commitments and how much revenue did it generate? Then the Committee could look at the obligations of R70 billion. An area that affected Eskom was the wastage on contracts because other departments signed contracts and Eskom had to pay. If Members could get the balance sheet, they could narrow the matter down to where the money was needed and where it was spent.

Ms Mente-Nqweniso recalled that at the end of the 2019, Mr Mashigo had said that issues with coal had been resolved and there was sufficient stockpile, but in December 2019, there had been an unannounced load shedding and the country was told that the coal was wet. If the actions indicated by Mr Mashigo the previous year had been implemented, who had not done the monitoring to ensure that coal was of a standard to generate energy?

Ms Mente-Nqweniso asked about the lifestyle audit. The high risk staff had been referred to authorities. Something had told Eskom that something was wrong. Why could Eskom not just do the audit and see if the people lived according to the expected standards? What had triggered Eskom’s concern? Were all officials declaring their interests so that the legal issues in court, such as Mr Koko’s daughter’s firm, could be avoided? The removal of ash: why was a contractor used? If ash had to be removed for the life of the power station, why was Eskom relying on a private person to do it?

Ms Mente-Nqweniso referred to recommendation 6.2 regarding sub-standard works. The first speaker had spoken about design defaults and substandard work provided by contractors. Who should have checked on that work? What had happened to those persons? Had those companies been blacklisted and removed from Eskom? Lastly, in terms of expenditures, she needed the expenditure framework of Eskom. How much did the Independent Power Producers (IPPs) generate and how much was lost to IPPs? Could Eskom confirm that it wanted to lay off workers to save the balance sheet?

Ms Swarts said that South Africans could not be patient. Telling South Africans about design faults at Medupi was not relevant as South Africans just wanted to have electricity. After Medupi, which boiler was to be shut down for 75 days? Eskom had to tell members how they were going to fix the design defects. In March 2019, Eskom had a loss of R2.3 billion and an irregularities expenditure of R20 billion. That was a serious problem. There was a problem and in-between Eskom had wet coal, but in English, Eskom had perfect papers. People in RDP houses did not want anyone talking like that. “Lame community people” just wanted to know about electricity. If Eskom said 18 months, could the community people write that down in a diary and it would happen and would there be no load shedding after that. 

Ms Swarts noted that Eskom management was swearing on the Bible that there would be no load shedding. The weakness in the presentation was that it did not give timeframes. There had to be no wet coal. Three people had been investigated but their cases were closed. People had been allowed to resign: was money involved as far as those people were concerned? Were they given their pension money? Why were they allowed to resign and not pay back? Eskom management should not switch off electricity and all those other things that they did. She wanted Eskom to repeat what other Members had requested. How much was generated by IPPs and what relationship did Eskom have with IPP companies? At what rate did they sell electricity from IPPs to public?

Mr Somyo addressed the issue of coal quality. There was an indication that certain measures were observed, but he did not know if it was a result of the Committee oversight visit. Was that after the visit as during their visit it became clear that coal quality was a challenge? The breakages in the boilers were partly because of the poor quality coal. Boiler maintenance was linked to coal quality and would continue if the problems with coal persisted. Was there control of the contractual environment as far as the intake of coal was concerned and the matching of penalties in terms of ‘take and pay’? The contracts seemed to be a rip-off. Slide 31 showed that Eskom had difficulty in renegotiating contracts. Could Eskom present the actual expenditure on the actual clause applying to coal Intake? How much was the penalty? There was an irregular expense of R20 billion. That was a loss that would continue.

Mr Somyo stated that the second area was the actual audit of coal quality. Could the Committee have a spreadsheet that showed the quality of coal that reached Eskom’s plants, and whether the control happened at the source or when it got to the boiler? During the visit, there was no indication of an audit of coal and the auditors had confirmed that. A major loss at Eskom was in terms of the coal.

Thirdly, Mr Somyo said that the generation challenges were pushing the country to look further than Eskom. The IPPs generated more than 9000GW per hour. That cost was 222 cents per unit and in relation to that Eskom priced its generation sales at 90 cents per unit. If that was the case, the question of the sustenance versus the policy environment in respect of IPP had to be addressed as it impacted on Eskom’s ability to finance itself.  R21.3 billion was spent in the year in question. If things went as such, it would lead to losses. However, it did not mean that Eskom should come down heavily on the poorest of the poor who relied on Eskom’s energy. As it looked as if Eskom would have to move deeper into IPPs, would Eskom continue to pass the costs of IPP energy on to the consumer? The economy was already hitting consumers hard.

Mr Hadebe was partly covered. He asked if Eskom had centralized maintenance services of experienced engineers because the CEO had spoken of philosophy maintenance. Slide 24 showed that Kusile and Medupi had an 18 to 24-month maintenance plan. Was that part of the critical component? As they were new plants, why did they need 18 months and 24 months for maintenance? He knew Eskom topped the list of engineers and the average experience ranged from 15 to 20 years. So why were they talking about lack of skills? He was not convinced that there was a shortage of skills and the need for such extensive maintenance at new plants

Ms B Zibula (ANC) said that Eskom should not blame Members for fighting. The nation was in tatters. People were paying for their electricity so why was the situation happening? The nation was pushing the Committee. People were paying for their electricity and so it was hard to explain to them what was going on.

She was happy to hear that there was a recovery of funds. Eskom was owed so much money that the Committee would be very happy if Eskom could recoup the money. She echoed the concern about not seeing people going to jail. SIU and Hawks had to do something.

Mr E Buthelezi (IFP) noted that some people had resigned. Were criminal charges pursued against them? Likewise, were those dismissed for fraud and corruption reported to the law enforcement agencies? Of the 370 people targeted for the lifestyle audit, how many were high risk?

The Chairperson noted that the meeting was moving into extra time but the matters were grave. He had a long list of questions but he asked about the issue of tampering with coal. What were the consequences for tampering with the coal? Did Eskom continue using the services of that service provider? In writing, he wanted information in writing about the hardships experienced by the company and what were the consequences of that?

The Chairperson read out recommendation 6.5: “Vetting of all supply chain practitioners, managers and the Board must be implemented immediately, for the head office as well as other centres where procurement takes place, and a report on this must be sent to SCOPA within 60 days from the adoption of this report by the National Assembly”. He noted that the 60 days had lapsed in January 2020. Had the vetting happened? It was a Cabinet resolution of 2014 and he wanted to know if the executives had been vetted. He wanted the CEO to submit the report the following week but he wanted each of the executives present to indicate whether he had been vetted or not.

The Chairperson asked for succinct responses. Each person should not speak for longer than five minutes.

Mr Hadebe suggested that Eskom be asked to provide written responses and to appear again, with the board. He did not want it to appear as if the Committee was undertaking malicious compliance. Members had asked a lot of critical questions that deserved substantive answers.

The Chairperson said that he wanted a preliminary response from the officials but written responses had to follow. He wanted to hear the immediate reaction of Eskom and that would be followed up by written responses.  He suggested that the CEO should provide a global response.  Because the debate on the State of the Nation Address was a three-line whip, all Members had to be in the House for the debate that afternoon.

Responses by ESKOM

The CEO agreed that the control environment at Eskom had to be improved and the expansions had to stop. The expansions and modification related to the problems in respect of a lapse of time and that led to the contracts being modified.  As far as the New Largo coal was concerned, the intention was not to put more coal on road but on rail. Eskom was working with Transnet to develop an inland coal terminal which would provide Eskom with far better control over the delivery of coal, both in quantity and weight, which was far better than having 4 000 trucks delivering coal on a daily basis as that was extremely difficult to control.

The CEO pointed out that the notion that Eskom could pursue new, very large mega projects without tariff increases above CPI meant that debt had to be taken on. That situation was exasperated by fraud, corruption and so on. The money had to come from somewhere to deal with the debt to pay for the three mega projects. It could come from a tariff increase or an equity injection, but either way, it created a very significant risk to the sovereign. The issue of Eskom debt had to be addressed in order to make the entity sustainable.

Mr de Ruyter responded to the question on boilers. There was a different approach to boilers at new builds and existing plants. Eskom was taking the units offline, one by one, at Medupi and Kusile and raising the boiler by 12.5 meters to reduce the exhaust temperature as it was currently emitting gas at 280 degrees. That temperature was too high and damaged equipment downstream. The units had to be taken offline one by one to fix the boiler and the coal supply etc. Coal milling and coal handling mechanisms were being addressed at the same time. Single points of failure had to be mitigated, for example, the recent conveyer failure, by building in various redundancies and storage capacity to help the entity to buy time in the event that there was a conveyer failure. He had visited Medupi himself and had inspected the entire length of the conveyer. The completion of the bunkering system meant that the power station would better manage the coal supply issue by having sufficient capacity of coal in storage

The problem with the ash was being addressed. Eskom had to spend R100 million in capex in order to address the issue of the disposal of ash as it was planning to stop using contractors for the service. The contract was R17 million per month so the entity had a strong business case for the capex project.

The CEO admitted that the Soweto debt problem was not solved but there had been a 100% improvement on the previous rate, which was positive. It was essential to work on a culture of payment for services. Eskom could not supply electricity without payment. Eskom was moving into Soweto and disconnecting illegal and unpaid connections where payment was below 30%. He understood the inconvenience to some people who did pay but Eskom had to stop the culture of non-payment. He hoped that the Members understood that Eskom was in a very difficult position.

He sensed the anger and frustration of Members about the lack of speed regarding the law enforcement processes, but the wheels of justice turned slowly. Eskom was working very closely with all law enforcement agencies. Eskom was also prosecuting those who had been involved in fraud and corruption through civil courts as the burden of proof was lower in the civil courts and it was an easier case to be made, and the assets recovered through the civil process went to Eskom and not to the Asset Recovery Fund.

Management was fully aware that Eskom had created a brake on the economic system, which was why Eskom was working hard to fix the generation problems. On addressing the design defects, he stated that it was frustrating that new plant had design defects but that was where Eskom was and Eskom had to resolve the problems, even as it sought to recover damages.

In response to Ms Mente, the CEO stated that the debt service obligations were R70 billion pa, which put a huge burden on the income statement. Debt had to be addressed through an equity injection, higher sales or a tariff increase. It was a chicken and egg situation as Eskom would like to have higher sales but it could not increase sales until it could generate more electricity and that could not be done until the plant was fixed and the economy was growing. However, once the plant was fixed and the gigawatts were available, the brakes would be released. He asked that Eskom be permitted to address the question regarding load shedding and wet coal in a written response. Lifestyle audits had been accelerated but people were clever and they made it difficult to track them down by doing business through a friend or cousin and so on, and thereby hiding their involvement in fraud and corruption.

The CEO was adamant that it was very important that Eskom be involved in the new IPP programme. Eskom had to be involved in the quantum and cost in new IPP programmes. Eskom had been engaging with the office dealing with IPPs. Together they would also look at the bid 1 and 2 contracts that had been finalized at very favourable rates for the IPPs as Eskom was looking to reduce costs on those contracts. He understood that South Africans were no longer patient, hence Eskom needed experienced staff, not only skilled engineers but project managers as that had been a neglected skill, artisans, etc. Project Managers would ensure greater predictability when maintenance began. Regarding the promise of a maximum of 18 months, all he could say was that Eskom would try its best to meet the commitment but it had to balance maintenance and the supply of energy. The entity did not have a good track record of putting units back online after maintenance, but that issue had been addressed.

He agreed that coal quality did have an impact on boiler performance. If there was matter, such as steel in the coal, that damaged the boiler or if the coal was abrasive, it sandblasted the boiler tubes and that created leaks. There were challenges with the transfer leg of transporting coal between mines and power stations because even when trucks were tracked, Eskom had found that people changed the coal on the trucks so that Eskom did not get the quality coal that it was paying for. The sealed covers addressed that issue and provided a watertight system. Once a company was found to be involved in such activities, the contract was suspended. So, there were consequences.

The Chairperson noted that the questions of the Members had been detailed and required detailed responses. The CEO had given an executive summary. He requested detailed written responses from Eskom by close of business on the following Wednesday. In the draft programme, SCOPA was provisionally meeting with the Inter-Ministerial Committee on 4 March 2020 on, inter alia, Eskom debt and therefore he proposed a meeting with Eskom at 6pm on the same day. The agenda would commence with deviations and expansions and then they would engage in a hearing of Eskom matters plus an update of investigation matters.

He asked if the executives before him had been vetted.

Mr Hewu and Mr Tshitangano had been vetted; Mr Nxumalo had submitted papers for vetting; Mr Mashigo and Me de Ruyter had not been vetted.

The Chairperson asked if Medupi and Kusile were practical and viable. What were the opportunity costs? Was SA saddled with load shedding for next 18 months?

The Chairperson said that the Committee was not patient with load shedding and the absence of the board spoke to an institution that little regard to accountability and was hell-bent on undermining Parliament. Clearly, the problems with Eskom rested largely with the board. The previous Board Chairperson, who was also the Acting CEO, had resigned when Eskom had had load shedding despite assurances to the President that there would not be load shedding. The Chairperson had not thought that it was a personal pronouncement made by Mr Mabuza but that it had been a board commitment. It was unacceptable that some board members had seen it fit not to resign. Was the board not working in a team and were decisions taken in silos? Wholesale removal of the board and the executive should have been the requirement. It did not look good that the President came back from Egypt to assure the country that there would be no load shedding. He wanted to understand the decision-making processes.

Ms Mente-Nqweniso asked the Deputy Minister to speak about the constitutionality of switching off electricity in Soweto.

The Chairperson stated that those were issues for the meeting of 4 March 2020.

Closing remarks by the Deputy Minister

The Deputy Minister was aware that there was a House sitting at 14:00. He had no doubt that the team had taken down all questions, but it would be better if all questions be sent to the Eskom team by the Committee just to ensure that no questions were omitted. He would take the comment about the interim board to the ministry.

The Chairperson agreed to send a list of the questions asked by Members.

Closing Remarks

The Chairperson informed Members that the meeting on the following day was with SAA at 9:00. It was to be a joint meeting with the Portfolio Committee on Public Enterprises. He requested a five-minute caucus meeting SCOPA Members to prepare for the following day.

The meeting was adjourned.