Eskom contracts with Tegeta for the supply of coal: Office of Chief Procurement Officer briefing

Public Accounts

10 May 2017
Chairperson: Mr N Godi (APC)
Share this page:

Meeting Summary

The Office of the Chief Procurement Office (OCPO) explained the four Eskom contracts with Tegeta Exploration and Resources for the supply of coal, based on the PricewaterhouseCoopers (PwC) report. The four mines investigated in the PwC report were Brakfontein Colliery, Tshedza Mining Manungu Colliery, Keaton Mining Manungu Colliery, and Universal Coal Kangala Colliery.

PwC report highlighted numerous discrepancies in the coal supply agreement contract. It found that the contract was poorly formatted, containing irrelevant and unreferenced information, as well as unclear ambiguities. The report found that the Coal Quality Management Procedure (CQMP) was incomplete and not yet agreed to or implemented. In response, Eskom management stated that the contract was compiled with the assistance of corporate legal advisors, with input from Eskom’s Primary Energy Division. For the Brakfontein Colliery contract, a 2015 report by Dr. C Alphen, Chief Technical Advisor at Eskom, found that the quality of coal being provided by the Brakfontein Colliery to the Majuba and Matla power stations was in fact not suitable for these sites.

The OCPO revealed that Eskom had awarded all four contacts under the 2008 Medium Term Coal procurement mandate for emergency coal procurement. The mandate was extended during an update of the Board of Directors Tender Committee in 2010, as Eskom management had interpreted the Board minutes which read “noted” as providing approval for the extension. Under the extended 2008 mandate, Eskom awarded the four contracts through unsolicited bids, without the benefit of competition for the tender. For this reason, the Chief Director of Supply Chain Governance at National Treasury stated that it was likely that Eskom overpaid for these contracts.

The Treasury Chief Director informed the committee that the coal supply agreement contract for the Brakfontein Colliery, signed in March 2015, was a R3.7 billion tender for ten years. The PwC report stated that there was no evidence of compliance to a financial evaluation process, however Eskom management responded that this was not the case. Moreover, the report found that the contract with Tegeta was in violation of Eskom’s procurement policy, specifically prohibiting the single adjudication of contracts, as well having inflated price escalation basket parameters without any reasonable justification for that.

The Treasury Chief Director noted that the mining licence for the Brakfontein Colliery was granted to Tegeta Exploration and Resources in 2010, while the water-use licence was only issued by the DWS in December 2014. Despite the Brakfontein Colliery not meeting the preliminary supply chain management requirements, Eskom management chose to commence negotiations with the supplier in May 2014, before a water-use licence was obtained. Moreover, the PwC report found that the Health and Safety Report was finalised two and a half months after the coal supply agreement contract was signed. In response, Eskom management stated that the Health and Safety checks could not be performed, as the mine was not operational at that time.

Members raised concerns about the presentation of a PwC report by National Treasury, particularly considering Eskom was not present to account to the Committee. This was discussed at length. The Committee agreed that it would be necessary for Eskom to appear before the Committee to account for the findings of the PwC report before any recommendations could be made. The Chairperson suggested writing a letter to National Treasury to obtain clarity on its progress and the challenges the OCPO faced in compiling the reports on state-owned entities which were due in November 2016.
 

Meeting report

The Chairperson stated that the meeting would not be a hearing in the classical sense, as the delegates appearing before the Committee were in fact its “enablers”, assisting in doing the Committee’s work. He noted that the Office of the Chief Procurement Office (OCPO) was expected to provide reports on procurement for all the major state-owned entities, including Eskom, Transnet and the Passenger Rail Agency of South Africa (PRASA), amongst others. These entities would be afforded an opportunity to respond to the OCPO reports, subsequent to their presentation to the Committee. However, time constraints presented a fundamental challenge to this process, as these reports had been expected since November 2016.

The Chairperson made mention of media reports suggesting that some of the entities in question had been reluctant to cooperate and produce documentation. He cited the difficulty that the Standing Committee on Public Accounts (SCOPA) had experienced when requesting documents from the South African Broadcasting Corporation (SABC), as well as Transnet. On this point, he stated that the Committee’s agenda was not to find anyone guilty during the session, but simply to gather information.

Ms N Khunou (ANC) argued that considering the Committee was supposed to receive the reports in November 2016, perhaps the entities were intentionally slowing down the process. The reports were expected to be finalised altogether, which was not the case. She suggested that the Committee attempt to speed up the review of information, as well as ascertain why these entities were delaying the process.

Mr M Booi (ANC) stated that although National Treasury was “a good friend” of the Committee, it should take some responsibility for this. Treasury should have been corresponding with the Chairperson about the nature of the delays in providing the reports. Considering the Committee’s summoning power, this information could have been useful in establishing the real reasons for the delays at these entities. Mr Booi noted that a similar situation had arisen in the investigation of the South African Social Security Agency (SASSA), where the entity had stalled the process entirely by telling SCOPA it was waiting for National Treasury, and telling Treasury it was waiting for SCOPA. The Committee “should not be used like that”, and any relevant correspondence between the Treasury and the entities in question should be brought to the SCOPA Chairperson in writing.

Ms T Chiloane (ANC) asked if there had been cooperation between the entities and Treasury in compiling the reports. Was the matter resolved, in terms of receiving the appropriate reports and documents? What is the status of the report? Is it agreeable between Eskom and Treasury? She noted that this issue should be clarified in the interest of preserving the reputation and integrity of SCOPA.

The Chairperson stated that this should not be the concern of the Committee, as it will be the OCPO’s integrity at stake in presenting the report on Eskom.

Mr E Kekana (ANC) asked if the OCPO was presenting a preliminary report or a final report.

The Chairperson implored the Committee to listen to Treasury’s presentation before posing such questions. He stated that SCOPA was expected to decide which departments to summon based on information received from the Auditor-General South Africa (AGSA) on 9 May 2017. To this extent, Members’ focus should be on evaluating the information provided by the OCPO.

Mr V Smith (ANC) agreed with the Chairperson’s suggestion, but sought clarity on Mr Kekana’s question about the status of the OCPO report. Mr Smith cited a similar situation six months earlier, where SCOPA had been presented a report from Treasury on a department, and had decided that the report had merit. The department then engaged with the Committee on the basis of the report, however there was an underlying debate as to whether a report from the Auditor-General South Africa (AGSA) was required, considering Treasury is not independent. Despite “damning findings”, no further action had been taken on this report, and a particular precedent had been set. How would the Committee overcome the problem faced six months ago, considering this precedent?

The Chairperson argued that the difference in this instance was that Treasury was undertaking an investigation into a number of entities, and the Committee had expressed an interest in receiving these reports. Ideally, SCOPA would have received all the reports at the same time, and thereafter decided which reports to follow up on, however this was not the case. Lastly, Eskom is not audited by the AGSA, but rather by SizweNtsaluba VSP.

Mr Booi recommended that the Committee move forward.

In response to Mr Smith’s question, Ms Khunou stated that all relevant parties are expected to sign an AGSA report. She stressed the importance of communication and coordination in ensuring that the Committee gets a sense of each party’s perspective, and does not engage in “a witch hunt”. She was unsure whether the OCPO had interacted with Eskom in compiling the report, but she would be agreeable to continuing with the presentation. However, what would happen after the briefing, considering Eskom was not present?

The Chairperson requested the Committee proceed with the agenda, taking into account the issues mentioned by Members. In doing so, the Committee would strengthen its own processes in dealing with the OCPO report.

Mr D Ross (DA) supported the Chairperson’s suggestion, stating the OCPO presentation was a briefing, rather than a hearing. He noted there were media reports of the preliminary report on Eskom being leaked, and was therefore already available in the public domain. Therefore, it would be imperative for SCOPA to hear from OCPO on the status of the report and engage on it.

Ms N Mente-Nqweniso (EFF) stated that she had no problem with the Chairperson’s request, but suggested the Committee meet with OCPO behind closed doors to deliberate on the report, and subsequently decide whether it would be necessary to meet with the entity concerned.

Mr Kekana agreed with Ms Mente-Nqweniso, stating there were a number of areas in the report that were unclear. However, he cautioned that engaging on a non-finalised report would be improper, therefore it would be necessary to have a private meeting with Treasury before publically discussing the issues. He noted the “serious implications” the report may have for Eskom, and warned the Committee against taking sides before hearing from Eskom. For this reason, Mr Kekana stated that he would be comfortable with having a closed-session with Treasury.

The Chairperson noted that SCOPA would have to apply for such a closed meeting, as the activities of Parliament are to be open to the public. Why should SCOPA treat this issue any differently from others?

Mr Booi agreed with the Chairperson, noting that closed meetings in Parliament were in fact very rare.

The Chairperson urged the Committee to proceed on the basis of the points established. Once again, he expressed his regret at the fact that all the reports were not yet complete. For this reason, he stressed the need for SCOPA to tighten its processes to ensure everything is sped up. He then invited the delegates from the OCPO to introduce themselves and begin the briefing.

Tegeta supply of coal to Eskom: Office of Chief Procurement Officer briefing
Mr Solly Tshitangano, Chief Director of Supply Chain Governance at National Treasury, noted that the report under review was in fact compiled by PricewaterhouseCoopers (PwC). He explained that Treasury had requested a number of coal contracts made by Eskom in 2015, and began reviewing the documents in August 2015. In September 2015, Eskom had engaged PwC to conduct a review of the Coal Quality Management of certain coal suppliers. Specifically, the request pertained to four contracts with suppliers (mines) owned by Tegeta Exploration and Resources. The PwC report had focused on one contract of particular interest to the National Treasury, and the PwC report was issued on 26 November 2015. Thereafter, Treasury continued its engagement with Eskom, unaware that the PwC had finalised its report. Treasury issued a draft report on 12 April 2016, and Eskom responded in August 2016. Eskom then requested PwC conduct a follow-up report, which was issued on 10 November 2016.

Mr Tshitangano noted that when the OCPO came to SCOPA in November 2016 to report on irregular expenditure, Treasury was still in the process of engaging with Eskom on the finalisation of its own draft report. When Treasury requested additional documents from Eskom in 2017, Eskom had provided them with the two PwC reports; dated 26 November 2015 and 10 November 2016. Mr Tshitangano recognised that the Committee had been requesting a final report from Treasury for quite some time. To this extent, some of Treasury’s findings were included in the PwC report. He suggested taking the Committee through the PwC report – including comments from Eskom management - and thereafter the findings could be discussed and scrutinised. He reiterated that this was PwC’s final report, and that the findings therefore cannot change.

Mr Tshitangano noted that the coal supply agreement between Eskom and Tegeta had been procured through an “unsolicited bid.” He explained that this was a process without competitive bidding, where any mine has the opportunity to approach Eskom and make an offer to supply a certain power station. For the coal supply agreement at the Brakfontein Colliery – owned by Tegeta - negotiations were held between 9 May 2014 and 30 January 2015. Tegeta was granted a water-use licence by the Department of Water and Sanitation (DWS) on 22 December 2014. The coal supply agreement was signed on 10 March 2015, and the supply of coal commenced from 1 April 2015. This supply was briefly suspended on 31 August 2015 and reinstated on 5 September 2015.

SCOPA was presented with an extract from the coal supply agreement with Tegeta. Mr Tshitangano noted that the “Contract Coal” was defined as coal originating from pre-certified stockpiles made up of a blend of seam 4 upper (S4U) and seam 4 lower (S4L) in respect of which measurements of all coal quality parameters comply with the quality specifications and none of which is reject coal. According to the coal supply agreement, S4U and S4L coal could be blended, and supplied to Eskom, provided the coal met the quality specifications and was not considered “reject coal.” The mining right for the Brakfontein Colliery had been granted to Tegeta Exploration and Resources on 26 October 2010, and expired on 25 October 2020.

The PwC report highlighted sixteen findings and the presentation included Eskom’s response to those:
• The first finding was that the supplier had not been referred to Supplier Development and Localisation for suppliers’ pre-qualification and supplier registration as per section 3.7.3.9 of the Eskom Procurement and Supply Management Procedure. In response, Eskom management considered this an oversight.

• The second finding was that the evaluation team selected did not complete the “declaration of interest” forms prior to the pre-qualification stage as per the Eskom Supply Chain Management procedure. In response, Eskom management stated that a formal declaration of interest process was being implemented.

• The third finding suggested there was no evidence that the evaluation team underwent the required training on the Eskom Code of Ethics’ conflict of interest policy. In response, Eskom management stated that Primary Energy Division (PED) staff members had undergone ethics training, while the rest of the staff had been given a deadline of December 2015.

• The fourth finding was that the blend of S4U and S4L coal produced from the Brakfontein Colliery was not recommended for the Majuba and Matla Power Stations, as there was a high probability that the blend would frequently exceed the 240 rejection specifications for both power stations. This finding was informed by a technical review from Dr C Alphen, Chief Technical Advisor at Eskom, dated 12 March 2015. The technical review indicated that this was because of the poor quality of S4U coal, and recommended that only de-stoned S4U coal should be supplied to the Majuba and Matla power stations. The technical review recommended that if the de-stoning of S4U coal was not feasible, then the supplying of only S4L coal to Majuba and Matla was an acceptable option. In response, Eskom management stated that it was unaware that the report had indicated the coal was not recommended for Majuba power station, for which it was contracted. Eskom management stated that it would review the reports and act accordingly.

• The fifth finding was that the auditors were not provided with the latest detailed closure cost assessment reports. Eskom management responded that the environmental assessment had been performed in 2014, but could not confirm the exact date. Eskom management stated that the environmental team should have the report, and if they cannot produce it, the finding should stand.

• The sixth finding was that the first Health and Safety evaluation was conducted 8 days after the contract was signed. In response, Eskom management stated that Health and Safety checks could not be performed at the correct time, as the mine was not yet operational. They stated that the checks could only be performed at least six weeks after the mine became operational.

• The seventh finding was that during the technical evaluation process, consistent and multiple burn tests were performed, the last two dated after the contract was signed. In response, Eskom management stated that it was certain that combustion tests had been conducted before the contract was signed, and the results communicated to the team. They stated that the signed combustion report was probably signed afterwards.

• The eighth finding noted a discrepancy in the dates of the Environment and Legal reports, possibly indicating that the environmental report was backdated. In response, Eskom management stated that these were clerical mistakes, and that all reports were signed in 2014.

• The ninth finding was that the Health and Safety Report, based on an on-site evaluation, was finalised two and a half months after the contract was signed. In response, Eskom management stated that Health and Safety checks could not be performed while the mine was not operating, and only six weeks after the mine became operational.

• The tenth finding was that the Technical Report was finalised only after the contract was signed. Eskom management stated that a technical evaluator was present during the evaluations and negotiations and all his views were noted. They stated that technical evaluator only signed the report later, as he was not available at the time.

• The eleventh finding revealed that the commercial and financial evaluation report was not afforded to PwC. PwC found no evidence that a financial modeling and evaluation process was followed, or a clear commercial motivation for entering into the contract in the commercial terms provided. In response, Eskom management stated that two meetings were held with the supplier in which a comprehensive financial discussion was performed, including financial models and a spreadsheet on the screen for comments.

• The twelfth finding was that three negotiation meetings took place between Eskom and Tegeta prior to the pre-qualification requirements being met. They noted that the Health and Safety function was not represented at any of these meetings. PwC found that the Supplier Development and Localisation function was also not included in the negotiation meetings, as required by the Eskom Supply Chain Management procedure. In response, Eskom management stated that the Supplier Development and Localisation function plays an oversight role during negotiations, and these individuals did not always attend the meetings.

• The thirteenth finding highlighted several discrepancies in the coal supply agreement contract. PwC found that the contract was poorly formatted, containing irrelevant and unreferenced information, as well as confusing ambiguities. The report stated that the contract appears to have been put together hastily by copying and pasting sections from other contracts. The Coal Quality Management Procedure (CQMP) containing obligatory requirements referred to in the body of the contract is in draft, incomplete and not yet agreed or implemented. The CQMT annexure pertains to the sampling, analysis, reporting and resolution of disputes for the qualities and quantities of coal supplied in terms of the agreement. In response, Eskom management stated that the contract was compiled with the assistance of corporate legal advisors, with input from the PED. Eskom management stated that the PED was in the process of developing revised standard conditions of contract which could be the reason for the inconsistencies in the Brakfontein Colliery coal supply agreement.

• The fourteenth finding was that the coal supply agreement had been procured under the 2008 Medium Term Coal procurement mandate set up originally for emergency coal procurement. During an update of the Board of Directors’ Tender Committee in 2010, the mandate was extended and expanded to contract for the life of mines, to extend current contracts, and powers with sub-delegation authority were granted to the PED Divisional Executive. The PwC report stated that there was no evidence of compliance to financial evaluation criteria, nor could PwC establish that a mining and production cost analysis was performed. In terms of the 2010 mandate, financial justification will be performed on cost plus a risk adjustment fair return.


In response, Eskom management interpreted the board minutes – which read “noted” – as providing approval as requested. The PED Senior Manager for Fuel Sourcing had confirmed that a Coal Supply Optimisation Model and an integrated demand and supply planning process existed, but that it was not generally used to confirm that a supply contract fits the optimised plan.

The PwC report further stated that the relative percentage in the price escalation basket differs from the prescribed basket, and that no rationale for this deviation from standards was provided. In response, Eskom management stated that suppliers had pushed back on the escalation basket, and that the PED was considering new standards that will be taken through the required governance processes.

• The fifteenth finding pertained to the incomplete and unimplemented CQMP, referred to in the body of the contract. The Eskom board responded by stating that the CQMP was not signed as some of the conditions therein, such as the fact that the mine must have an automatic sampler, could not be fulfilled as the supplier had not obtained one yet. Mr Tshitangano noted that Clause 22.2 of the CQMP states that the supplier shall be responsible for the sampling of coal and associated costs, and must ensure that acceptable auto-mechanical sampling equipment is available for sampling of coal, and maintenance thereof.

The PwC report also found that the coal specification requirements were amended in a letter from the PED Senior Manager for Fuel Sourcing to Tegeta Exploration and Resources. The letter amended the quality criteria at the Brakfontein Colliery. The PwC report stated that the amendment could be unenforceable, as the contract specifies that both contracting parties should agree to an amendment in writing, and no evidence to this effect was supplied. In response, Eskom management stated that they were considering the recommendation that the Brakfontein Colliery Coal Supply Agreement be drafted and re-signed by the parties.

• The sixteenth finding was that a formal handover process between the Coal Sourcing Manager (Contracting) and the Coal Supply Unit Manager could not be demonstrated.

Mr Tshitangano stated that it was clear that Negotiation Team Leaders were evidently in control of the process from beginning to end. There was no evidence to indicate any oversight from the PED General Manager during the processing of unsolicited offers, although he attended some of the meetings with suppliers and led the final negotiation meeting on one of the contracts. He noted that Eskom’s procurement policy prohibits single adjudication of contracts, yet the PED continued to enter into contracts in excess of R3 billion each, subjecting Eskom to a ten-year contractual commitment.

In terms of the OCPO’s recommendations, Mr Tshitangano raised concerns about the validity of the contract. He stated that this situation could provide Eskom leverage in finalising a range of unresolved issues, including insisting on the use of S4L coal exclusively, or insisting on the implementation of a coal-washing plant if coal seams are going to be blended in terms of the existing (incomplete) CQMP.

Discussion
Mr Booi called a point of order on a procedural matter, which was recognised by the Chairperson. Mr Booi raised an objection to the final section of the presentation, the OCPO’s recommendations for SCOPA. He argued that this information was unparliamentarily, as it undermined the oversight role of the Committee. The Chairperson agreed and allowed other Members to pose questions to the OCPO delegation.

Ms Khunou stated that as SCOPA, Members had a duty to ensure compliance, and there is clearly non-compliance with Treasury requirements in this instance. She noted that some entities – such as the DWS – have their own regulations. Why are the regulations of those departments not aligned with the regulations of Treasury? She suggested that Eskom appear before the Committee to agree or disagree with the statements provided in the OCPO presentation. She questioned Treasury’s outsourcing of government resources to a private auditing firm, namely PwC.

The Chairperson clarified that Eskom had in fact outsourced its audit to PwC.

Ms Khunou suggested that the Committee consider the contents of the presentation in their entirety, and subsequently find a date to have Eskom appear to discuss the findings. The Committee still needed further information from Eskom before any recommendations could be made.

Mr Kekana stated that he agreed with Ms Khunou, but expressed concern at the malicious non-compliance identified in the PwC report. He described the report as “inconclusive”, stating that it was clear that some information was missing. He implored the OCPO delegates to provide SCOPA with the relevant information that would allow the Committee to make an informed decision on the issue.

Mr Ross stated that the Committee should take this opportunity to engage constructively with Treasury in order to gather as much information as possible. Thereafter the Committee can clarify this information with Eskom.

The Chairperson invited Mr Ross to raise any questions of clarity he may have to Treasury delegates.

Mr Ross asked if the coal supply agreement contract between Eskom and Tegeta Exploration and Resources (Pty) Ltd was procured through an unsolicited bid or an open tender. From the documents supplied, it appeared as though the contract was procured through an unsolicited bid. Was there a competitive bidding process for any of the four contracts investigated by PwC? He noted that the value of the contracts was left out of the OCPO presentation. What are the values of these contracts? Has Eskom been blocked from entering into new contracts with Tegeta?

Mr Ross stated that according to media reports, the Brakfontein Colliery requested an additional R2.94 billion. Does the reported figure of R3.8 billion for the contract include or exclude this R2.94 billion? With regards to the quality of the coal, he asked what the consequences of processing “reject coal” would be on ordinary South African consumers. Have there been any resignations at Eskom surrounding the issue?

Ms Khunou raised a point of order, stating that Members had previously seconded a suggestion not to get into discussing the finer details of the contracts with Eskom, considering Eskom management were not present to answer for themselves. She urged the Committee not to engage in a “witch hunt”, but rather allow Eskom to come and present their own perspective on the findings. She urged the Committee to simply flag the PwC report, and Members’ concerns can be discussed once the report is finalised and Eskom may account.

The Chairperson stated that he would not preclude anyone asking questions of clarity. He suggested saving the questions pertaining to the details of the contracts for when Eskom appears before the Committee.

Mr M Hlengwa (IFP) stated that SCOPA should avoid compromising its own integrity. He argued that the purpose of the session was to establish information; therefore Members should be allowed to ask questions that enable the Committee to make a decision. He stated that a bad precedent would be set if the Committee began second-guessing the work of Treasury. To this extent, he argued that if the Committee were to “venture down that slope, we compromise any other work we do”. He stated that it would be necessary for SCOPA to gather as much information as possible in the session to make an informed decision when the Committee finally decides to call Eskom.

Ms Chiloane stated that in the interest of protecting the integrity of the Committee, things must be done fairly on a procedural level. Considering the report was leaked to the public, can the Committee base its wok on this document? She noted that Mr Tshitangano had stated that the PwC report formed part of Treasury’s report, and was not their complete report. Can SCOPA meaningfully use this report to decide the outcome of this meeting, considering Eskom was not present? She agreed with the point raised by Mr Hlengwa, stating that Members should be non-partisan in the process of doing their work, in the interest of protecting public funds and being objective. With this considered, she stated that the Committee should not undermine the work done by Treasury or AGSA.

Mr T Brauteseth (DA) stated that SCOPA’s duty was to protect the public purse. To this extent, Members should be hesitant to waste Treasury’s time, considering the OCPO delegates had flown from Pretoria to attend the session. Why should Members not be allowed to interrogate the delegates on the information provided?

The Chairperson suggested the Committee resolve the procedural issues before Members pose in-depth questions to the OCPO delegates.

Mr Booi stressed the necessity of respecting other Members’ opinions. Therefore, it was necessary for the Chairperson to make a firm decision to proceed, and allow Members to ask questions.

The Chairperson advised that Treasury delegates need not answer questions pertaining to Eskom, but the OCPO should answer for itself. He then invited Mr Ross to conclude his line of questioning to the OCPO.

Mr Ross requested clarity on the timeframes of the contracts which began in March 2015. He noted that there was clearly non-compliance with the supply chain management prescripts of Treasury. Specifically, the Public Finance Management Act of 1999 (PFMA) had been transgressed in awarding the contracts to Tegeta Exploration and Resources. He stated that Treasury should have taken further action, considering its own regulations were being flaunted by this irregular expenditure since 2015. Did Eskom provide reasons why they were not using competitive bidding processes for all four tender contracts investigated by PwC?

Mr Hlengwa referenced the fourteenth PwC finding, pertaining to the coal supply agreement contracts being procured under the 2008 Medium Term Coal procurement mandate for emergency coal procurement. In 2010, the mandate was extended and expanded to contract for the life of mines, to extend current contracts, and powers with sub-delegation authority were granted to the Divisional Executive of the PED. The OCPO reported that Eskom management had interpreted the board minutes – specifically the term “noted” – as providing approval for the contracts. Does this constitute a transgression of the PFMA? Can any of the subsequent action after the “noting” provide approval to the request for the extension of the 2008 mandate? He agreed with Members’ calls to have Eskom appear before SCOPA. However, the information provided by the OCPO provided a solid basis for discussion and the gathering of information.

Ms Mente-Nqweniso stated that Treasury had no interest in providing speculative information to SCOPA. She requested clarification on the costs of the contracts with Tegeta Exploration and Resources, given the fact that Eskom’s procurement processes were flaunted. Was the figure R7 billion, as speculated in the media, or around R10 billion? Is Eskom in such a financial state to be awarding contracts of this size? In terms of the tender negotiation process, was Tegeta the only company competing? She asked about the Health and Safety evaluation processes followed during the negotiation process. She noted that Dr Alphen’s 2015 report found that the S4U coal needed to be washed before being used at the Majuba and Matla power stations. Was this not a problem considering the current drought conditions in South Africa?

Ms Chiloane requested clarity on the DWS’s granting of a water-use licence to the Brakfontein Colliery in December 2014. Did the environmental assessment report influence this issuing of a water-use licence in any way? Secondly, it may be necessary to check Treasury’s regulations in relation to the supply chain management framework in order to ascertain which specific policies Eskom did not follow.

Ms Khunou stated that SCOPA would be sending the wrong message to the people of South Africa if the Committee chose only to scrutinise some reports and not others. The report presented by OCPO was in fact a draft report, rather than a consolidation of all reports. Treasury was a key stakeholder in rooting out corruption and helping SCOPA fulfill its duties, however scrutinising a draft report would be disingenuous to the due processes of Parliament.

Mr Kekana agreed with Ms Khunou, stating that in the past, Treasury and AGSA had provided SCOPA with useful information that enabled the Committee to root out corruption. However, the Committee would not keep quiet if Treasury provided information that was incorrect or inconclusive. When the Committee summons Eskom, the correct and appropriate information must be afforded to the Committee. When would the OCPO final report be made available?

Mr Booi noted that the Committee could not conduct its oversight role correctly if it was provided with selective recommendations based on an external report. Treasury’s report has been long awaited, and they had only provided the Committee with their own interpretation of the PwC report. Who is resisting Treasury in compiling the reports?

Mr Kekana suggested that Treasury take the Committee through their areas of disagreement with Eskom, in terms of the delays experienced in compiling the OCPO final report.

The Chairperson stated that it may be necessary to write to Treasury about its progress with the reports concerning Transnet, Denel and other state-owned entities. How far is Treasury in compiling these reports? What are the challenges? He suggested that Treasury report the correspondence back to SCOPA, in order for Members to get a better understanding of the issues. The Chairperson raised concerns about the scope of questions raised by Mr Ross and others, considering that Treasury was presenting a report by PwC. There were a number of issues Eskom needed to clarify, and it would be necessary to have Eskom management appear to present their side of the story. He noted that there were several questions that Treasury delegates could, in their capacity, respond to, and he invited them to do so.

In addressing the question about the extended 2008 Medium Term Coal Procurement mandate, Mr Tshitangano stated the contracts were secured through an unsolicited bid, in line with the extended mandate. The consequence of this was that the benefit of competition was lost in awarding all four contracts included in the PwC report. The OCPO presentation was not on Treasury’s draft report, but rather on PwC’s final report issued to Eskom in 2016. He clarified that the contract signed on 10 March 2015 was a R3.7 billion tender for ten years. In August 2016, Eskom requested to expand the contract from the original 18 million tons of coal for ten years to include an additional 10 million tons. In response, Treasury did not support the extension, since the issues surrounding the quality of the coal at the Brakfontein Colliery were unresolved.

Mr Tshitangano noted during the first contract with Eskom, Tegeta Exploration and Resources had acquired the Optimum coal mine from Glencore, and the deal was finalised after June 2016. In April 2016, Eskom paid an advance of R659 million for the supply of 250 000 tons of coal per month for six months to Eskom. When Tegeta realised the contract was going to expire in September 2016, they approached Treasury for a six-month extension at R19.59 per gigajoule. He stated that without any competition, Treasury felt that it would be paying Tegeta an exorbitant amount, and that Eskom had deviated from inviting competitive bids to only approaching one supplier. Mr Tshitangano stated that without the benefit of competition in an unsolicited bid process, it was likely that Eskom overpaid for all four the contracts with Tegeta Exploration and Resources.

Mr Tshitangano argued that upon reviewing the contract, it was clear that there was a problem with coordination between Eskom, the Department of Mineral Resources (DMR), and the DWS. He noted that the mining licence for the Brakfontein Colliery was granted to Tegeta in 2010, while the water-use licence was only issued by DWS in December 2014. The PwC report had highlighted the fact that Eskom had begun engaging with the supplier before it had obtained a water-use licence. In this regard, the PwC report stated that Eskom should have compelled Tegeta to comply with the preliminary requirements before negotiations could begin. Mr Tshitangano noted that the water-use licence comes with certain conditions to be met by the licence-holder. When PwC went back to do an audit in 2016 to verify whether the mine was compliant, they found that this was not the case.

He noted that since the mining and water-use licences were issued separately, from the DMR and DWS respectively, it was common for mining companies to take advantage of the mining right by commencing extraction before a water-use licence is granted. PwC had informed Eskom that it was in contravention of supply chain management policy in negotiating contracts with Tegeta Exploration and Resources. After the agreement was implemented, Eskom simply explained non-compliance as an oversight. He noted that PwC had informed Eskom that it was not convinced by the reasons provided by Eskom.

Lastly, in terms of the costing of the unsolicited bids, the agreed-upon price was R13.50 per gigajoule for the Brakfontein Colliery, and an exorbitant rate of R19.59 per gigajoule at the Optimum coal mine.

 The Chairperson thanked the OCPO delegates, and suggested that Members conclude the session with the understanding that the Committee will find time to address any outstanding issues.

Mr Ross requested further clarity on whether the value of the Brakfontein contract was around R7 billion or R4 billion?

Mr Hlengwa agreed with the suggestion that the Committee find time to engage with Eskom. He also requested that the Committee engage with the DWS in writing to ascertain the process of application for a water-use licence, as well as any possible backlog or pending applications against mines that are operating. He stated that this type of behaviour (operating a mine without a water-use licence) could be described as corrupt behaviour for all intents and purposes.

Ms Khunou stated that the legislative requirements for acquiring a mining licence should be placed under review.

The Chairperson thanked Members for their inputs, and the meeting was adjourned.
 

Share this page: