South African Bureau of Standards (SABS) delayed forensic audit of Gupta coal test

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Trade and Industry

13 June 2018
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee meeting was a difficult, at times acrimonious, one that found itself engaged in matters that were not on the agenda and struggling to resolve any of the agenda items. The Chairman of the South African Bureau of Standards (SABS) Board, Mr Jeff Molobela, and the SABS CEO, Dr Boni Mehlomakulu, vigorously defended themselves and their positions before providing brief narratives in response to some of the issues on the table, but without evidence to support their statements. Members were divided between those who wanted the SABS Board and CEO to take accountability and those who had doubts about the veracity of some of the allegations levelled against the SABS representatives and wanted them to be given additional time to prepare a more comprehensive report.

The Committee meeting was, firstly, intended to follow up the revelation in the Eskom Inquiry that the protocols at SABS had not been complied with when Tegeta coal samples had been tested in Mpumalanga in 2015. The coal had tested positive for meeting Eskom requirements, despite previously not meeting the standard. The Minister had then determined that DTI would conduct an inquiry into the matter. Other issues had arisen which had to be addressed as part the general oversight obligations of the Committee, including SABS laboratories that had not been accredited by the South African National Accreditation System.

DTI reported that Mr Koko, previously from Eskom, had testified before the Eskom Inquiry that he had suspended a contract with Brakfontein Coal Mine but, following testing by SABS in August 2015 that had approved the coal, the contract had been reinstated. The Minister had instructed DTI to investigate the matter as Mr Koko had said that he had relied on a SABS certificate to justify his actions.

Thereafter, DTI had received information from National Treasury that SABS had not disclosed the test on the Tegeta coal to Treasury despite being specifically asked about it. SABS had also indicated that it had a confidential relationship with Eskom and could not provide information requested by National Treasury. The entity that had issued the certificate in August 2015 was known as SABS Commercial but, following investigation, DTI had found that National Treasury had never given permission for SABS to be registered under the Public Finance Management Act.

The final point was that the testing had been uncovered and made known to DTI in February 2018, but the matter had been in the public domain since September 2015 when the matter was covered in a story on the front page of Sunday Times. The SABS Board and the CEO knew from that point about the claim of the false certificate but had not reported the matter, nor had SABS contradicted the claim by Eskom that the certificate verified the quality of the coal.

The SABS Board Chairman, instead of responding directly to the questions, began by defending his reputation, before coming to the point that the forensic investigation had only begun a week previously. The SABS Chairman then attempted to explain that the Director General was incorrect in stating that SABS Commercial SOC had not been registered with the Minister of Finance to operate under the PFMA. He had one document as evidence but not the actual approval document. Members of the Committee and the SABS Board Chairman engaged on those matters quite belligerently.

The SABS Board Chairman believed that a Member of the Committee had wanted the dissolution of the Board. He spoke of his qualifications and how much he was paid to serve on the boards of bigger companies. He informed the Committee that the certificate which had declared the Tegeta coal usable had been based on an ad hoc sample which could not be representative of the coal of the mine. SABS could not know what the test was going to be used for, nor could SABS refuse to test a sample. As it had been an ad hoc sample, it did not matter that it had been done at night and it was not his problem if people had believed the test results.

He informed the Committee that the CEO who had been at SABS for nine years and had only a few months to go in her contract and had done much to improve SABS. The Committee had been looking at a loss of R50 million, but they were looking at cash reserves of almost R450 million. SABS could have squandered that money.

The SABS CEO made a passionate statement about her work, her dedication to the state and her concern about her career. She had not received the information she had requested in time to prepare a response. Allegations had been made against her and SABS, both in the media and in the meeting, and those who had made the allegations should be the ones to provide evidence. She stated that not all the laboratories were accredited because there were costs associated with accreditation and only if a laboratory was used, was it accredited.

Members asked why it was so very difficult for SABS to give precise answers and to respond to the series of events detailed by DTI. Had SABS received approval from Treasury to operate SABS Commercial and, if so, where was the document giving approval? Why could it not be presented at the meeting? Why had there been a delay after the Minister had asked the SABS Board to conduct a forensic investigation. Why was the investigation not finished?

Why had the CEO not considered the Tegeta coal test a serious matter until there had been publicity surrounding the Eskom Inquiry? One Member asked the CEO and the Board Chairman why they should not resign that day. How did they believe that their continued existence at SABS enhanced its image and did not bring further damage to SABS?

A proposal was put before Members that the Committee support the Minister’s decision to issue SABS Board with a notice of intention to suspend the Board. The motion was defeated by four ANC votes to two DA votes and one by the IFP.
 

Meeting report

Introduction by Chairperson
The Chairperson refreshed Members’ memories, reminding them of a meeting in the Old Assembly Chamber where the DTI had briefed the Committee indicating that there was some challenge with Tegeta Coal, Eskom and SABS. The Minister had been at that meeting and SABS had also been present. The Minister had indicated that an unfortunate matter had occurred in that the protocols at SABS had not been complied with when Tegeta coal samples had been tested in Mpumalanga. Protocol had been breached, in the first place, when the request was to undertake tests after hours. Secondly, instead of SABS sampling the coal, Tegeta had selected the samples. Tegeta personnel had entered the testing laboratory during the testing, despite access being restricted to SABS personnel only. The coal had tested positive for meeting Eskom requirements, even though it had previously not met the standard. The Minister had indicated that SABS had been approached and he had determined that DTI would conduct an inquiry. On completion of the inquiry, DTI was to submit the report to the Portfolio Committee. The Chief Executive Officer, Dr Boni Mehlomakulu, who was at that meeting had indicated that she needed to defend her staff.

Since that meeting, other general oversight challenges had arisen, including the budget and the audit. Members were familiar with the Auditor-General’s report. As far as the Chairperson understood the situation, one of the core functions was that SABS used testing laboratories which they themselves did not accredit. They were accredited by the South African National Accreditation System (SANAS) but some of the laboratories had not been accredited by 7 June 2018. The Committee was concerned about the perception of quality indicated by the SABS trademark. Members were concerned because an unknown number of laboratories had not been accredited. Those were the issues that the Committee would be engaging with.

DTI request for forensic investigation of SABS testing of Gupta coal
Mr Lionel October, Director-General: Department of Trade and Industry, reminded the Committee that the Portfolio Committee on Public Enterprises had conducted the Eskom Inquiry and especially its contracts with Tegeta and the Optimum and Brakfontein Coal Mines, in late January 2018. Other intrigues in the coal business that the Inquiry had focussed on dealt with four suspended Eskom scientist technicians due to the testing of coal from the Brakfontein Colliery, the first mine owned by the Guptas. Mr Koko had suspended the contract with Brakfontein but, following testing by SABS that had approved the coal, the contract had been reinstated. According to Mr Koko, the Eskom four scientist technicians had refused to accept the results of the tests and he had suspended the four of them. The Minister had instructed the DG to investigate the matter as Mr Koko had said that he had relied on a SABS certificate to justify his actions.

The DG had written two letters to the Minister and the Portfolio Committee. In the first letter in February 2018, he had indicated that a possible case of collusion and/or manipulation of SABS processes had occurred at the SABS laboratory in Mpumalanga on 30 August 2015. In that context, the Minister had requested the SABS Board to conduct a full forensic investigation into the breach. Mr Koko had been correct in that he had received a certificate from SABS.

The DG then dealt with why the test had been irregular, as indicated by the Chairperson earlier. He added that the certificate was not a normal one and should not have been used for procurement as a normal three-way test had not been conducted. Mr Koko had misrepresented the Portfolio Committee when he had stated that he had a certificate that verified the standard of the coal. In the whole matter, SABS had issued three certificates, two of which were properly issued, and which had rejected the coal. However, Mr Koko had selectively used the incorrect certificate. The Minister had wanted details on that certificate. SABS had been   asked if any certificates had been issued prior to September but SABs had acted dishonestly, concealing the fact that a third test had been conducted dishonestly. He wanted to know who had issued it, why it had been issued and so forth. The investigation had been requested.

Thereafter, DTI had received extensive information from National Treasury that had raised more matters of serious concern. National Treasury had told DTI that SABS had not disclosed that particular certificate to Treasury. What was more disturbing, was that Treasury had specifically asked SABS if any other certificate had been issued prior to the September certificates. SABS acted dishonestly and concealed the August certificate. It was a clear case of misconduct by Mr Koko and the SABS officials who had provided the certificate. SABS had also indicated to Treasury that it had a confidential relationship with Eskom and could not provide National Treasury with the information. The DG noted that all departments had to act in the national interest and that all were subject to Treasury. That meant that SABS had acted in an irregular manner in putting Eskom above the country’s interests and had not cooperated with National Treasury.

The entity that had issued the certificate in August 2015 was known as SABS Commercial. DTI had investigated SABS Commercial and National Treasury had never given permission for SABS to be registered under the PFMA, despite the fact that the Minister of Finance had to approve any entity. That was, therefore, another compliance issue.

The final point was that the third certificate that had been uncovered and made known to DTI in February 2018, but the matter had been in the public domain since September 2015 when the matter had been covered in a story on the front page of the Sunday Times titled: “How Eskom bowed to the Guptas”. The Board and the CEO knew from that point about the claim of the false certificate. The CEO had not reported the matter, nor had it contradicted the claim by Eskom that the certificate verified the quality of the coal.

The DG stated that the Eskom investigation and the broader investigation into state capture would pronounce on those matters. He had brought the facts to the Committee while the Minister was still awaiting the results of the forensic audit that he had requested.

The Chairperson noted that the Committee had been informed in that earlier meeting that the inquiry would have been finished long before June, so she was a little puzzled and surprised as to why it had not been completed. What was going on?

The DG responded that he had had meetings about it and the Minister had written to the SABS Board requesting the results. He had indicated his serious unhappiness with the Board about the delay in presenting the requested forensic audit report.

The Chairperson asked when the results should have been received.

The DG explained that the forensic investigation was the responsibility of the SABS Board. The Minister had requested the investigation on 14 February 2018.

The Chairperson surmised that the Committee would have to enquire of the SABS Board as to when the report would be ready. The Chairman of the SABS Board, Mr Jeff Molobela, and the CEO, Dr Boni Mehlomakulu, were in the meeting. Earlier that morning the DG had spoken of suspension of some members. What had he been referring to?

The DG replied that the Minister had given the entire Board Notice of Intention to remove the Board on Friday 28 June 2018. The Board had been given an opportunity to respond and once he had received the response, he would have to apply his mind and then make a decision.

The Chairperson thanked him for making the Members aware of the information. She informed Members that they could request clarification of the DG’s input at that point or the meeting would continue with SABS. As she did not note any hands, she called on Dr Mehlomakulu to make comment on the processes but indicated that she was welcome to defer her comment until after the Board Chairman had spoken.

Dr Mehlomakulu indicated that she would prefer to speak after the of the SABS Board Chairman.

Engagement with SABS Board Chairman
The Chairperson called on Mr Molobela, asking him to clarify what was the situation with the forensic inquiry requested by the Minister. She noted that the issue had first been raised in Parliament and the Committee needed him to tell it about the status of the inquiry.

Mr Jeff Molobela, SABS Board Chairman, recalled that in 2012 he had sat in the main chamber of Parliament opposite Mr Atul Gupta and Mr Lazarus Zim, who had replaced him as Chairperson of Telkom. He had met the Guptas prior to that when they were attempting to persuade him to buy shares in Grintek, which he had rejected with the contempt that it deserved. Cabinet had decided to keep him as an ordinary board member.

The Chairperson asked him to address the issues.

Mr Molobela said that it was very important for him to establish his bona fides, as it was very important, when one dealt with an individual, to understand that person’s bona fides. As a Board member he had managed to get the sale of Telkom shares abandoned. He would attend to the statements of the DG who had made statements without prior consultation of the accounting authority when he had spoken of what the SABS Board had and had not done. He had a letter written to the Portfolio Committee of Public Enterprises, the Portfolio Committee of Trade and Industry, Minister Rob Davies and the Minister of Finance, Nhlanhla Nene, Minister of Public Enterprises, Pravin Gordhan, CEO of Eskom, Mr Radebe. The issue that he wanted to highlight related to the registration of SABS Commercial SOC. He said that it had not been done outside the prescripts of the law and SABS was seeking the relevant documents from 2000 when the Commercial section had been created. Once the archives had been analysed, SABS would provide a report. He then produced a letter that stated that the then DG of DTI had granted approval for the establishment of SABS Commercial SOC.

Ms Theko asked for guidance in finding the correct documents.

The Chairperson indicated that the letter from Mr Molobela was the last document in the batch of documents labelled the Eskom Inquiry: Mr Matshela Koko’s testimony and the matters relating to SABS. The Committee had not been furnished with the document of 2000 that Mr Molobela was referring to.

Mr Mahlobo informed Mr Molobela that his credentials were not at stake. The Committee’s understanding was that an instruction had been given to the SABS Board to undertake certain actions and the Committee wanted to know if he had made progress in that regard. That was the important issue at the time. If the conduct of SABS was seen to be unethical, that had to be dealt with. The other processes were on record. There were certain steps relating to governance that the Minister had undertaken. The Committee simply wanted to know the status of the inquiry into the certificate.

The Chairperson explained to Mr Molobela that he had been indulged long enough. The Committee was not conducting an inquiry but exercising its constitutional duty of oversight. They could not ignore the situation that had been raised. What the Committee was asking about the inquiry into the issuing of the Tegeta coal certificate in August 2015. The Committee had asked the CEO, but she had demurred, suggesting that the Chairperson of the SABS Board would respond.

Mr Molobela said that he had to continue where he had been because the DG had made an allegation that was not correct. The Committee would have to indulge him because they did not have copies of what he was reading.

The Chairperson asked Mr Molobela for his copy to have copies made for Members.

Mr Molobela proceeded to deal with the forensic investigation. He had asked the Board to obtain the terms of reference from the DTI. What the Board had received a month later was an RFP (request for proposal) approval to appoint a forensic investigator. He then asked that he appoint an SABS-approved forensic investigator. But he had been delayed for a month by DTI. The forensic investigator had subsequently begun work and would present his report in a month’s time. He had begun ten days previously.

The Chairperson requested timelines. The instruction was in February, and there was a month’s delay and then the investigation began in June. The subtext suggested the first month was beyond his control. She asked how long the procurement process took.

Mr Molobela explained that procurement had taken two months.

The Chairperson said that the Committee needed the facts.

Mr Mahlobo stated that the brief had been pinpointed. Had he done the forensic investigation or was it incomplete?

Mr Molobela agreed that it was incomplete.

Mr Mahlobo stated that the Committee did not want to deal with other issues that the Minister was addressing.

Mr Macpherson called for a point of intervention. He stated that he was starting to get the impression that it was very difficult to extract precise answers. The Chairman simply had to respond to the series of events detailed by the DTI. He had to either confirm or state why there had been a different series of events. That was the point of the meeting.

Ms Mantashe agreed with Mr Macpherson. The Chairman had stated that the DG’s explanation was short of facts, so he should explain what was not correct in the DG’s presentation.

Mr Radebe asked whether the letter of 2000 was relevant.

Mr Molobela stated that he felt that there was an inquiry and he was trying to address specific facts, but he was not being given the opportunity to put the facts on the table.

The Chairperson asked if the Committee was looking at the correct letters. She referred to a letter handed to her dated 2006 and asked whether that was the letter that he had been reading.

Mr Molobela stated that the letter proved that the DG had incorrectly accused SABS Commercial SOC of not being registered in a letter directed to Portfolio Committees and Ministers.

The Chairperson had outlined what had led to the oversight meeting and the input from the DG. She had not seen the word ‘allegation’ or that SABS was illegal.

Mr Molobela explained that the allegation related to SABS Commercial. SABS was engaged in the development of standards. SABS Commercial SOC was engaged in all the commercial business, which included testing coal for Eskom. The DG had stated that the PFMA processes relating to SABS Commercial had not been approved.

The Chairperson asked Mr Molobela show where in the letter it stated that SABS Commercial SOC was authorised to operate under the PFMA.

Mr Molobela stated that there was another letter which he had not brought with him.

The Chairperson exclaimed that that was not good enough because he had stated that the letter now before the Committee authorised SABS Commercial SOC to operate under the PFMA.

Mr Molobela responded with the words: he who alleged had to prove. The letters were with the DTI. It was up to the DG to prove the allegations. It was not up to him to prove that it was wrong. He would get the office to send the document through. He had submitted himself to the Committee, not because he had lots of time.

Mr Macpherson interjected that he had no choice in the matter. He had to attend.

Mr Molobela replied that he had not been called by the Committee; he had not been invited. He needed to know what his status was at the Committee.

The Chairperson stated that she had attempted to protect him. She invited Members who were waiting to speak to go ahead.

Discussion
Mr Macpherson suggested that what the Committee was witnessing was no different to what had taken place in the Select Committee earlier in the day. It was obfuscation, obstruction, misinformation and was no different from what his colleagues had told him had happened in that earlier meeting. Mr Molobela was not doing the Committee a favour by being there. He was accounting for what had nor had not happened, as was required in terms of the Constitution. Secondly, there was an easy way to clear it up. He asked Mr Molobela if he had received approval from Treasury to operate SABS as a commercial business. If he had, he should have that letter. If SABS had not received approval from Treasury, it was illegal. Had he received the approval and, if so, where was it?

Mr Mahlobo reminded the Committee to deal with the issues, not the people. Before him were two documents: a statement from DTI and letter from the then Minister of Trade and Industry. He informed the Board Chairman that the letter from the then Minister was insufficient. There had to be a document stating that SABS Commercial SOC had been formally approved. He and DTI had to resolve that matter.

Mr Cachalia attempted to bring clarity. The DG had stated that the entity that had issued the unauthorised test report had not been authorised to operate under the PFMA in terms of Section 54 of the PFMA. That was point 3 in the last letter of the pack. The SABS letter dated 2006 and addressed to the then Minister, Trevor Manual, talked about the units being collapsed into SABS Commercial SOC. However, in terms of Section 54, Treasury had to specifically grant permission for an entity to operate under the PFMA. Without that letter from Treasury, there was no evidence that SABS Commercial SOC was actually registered. He asked Mr Molobela for that letter.

Ms Mantashe asked why there had been the delay after the Minister had asked him to conduct a forensic investigation. Why was it not finished?

Mr Esterhuizen asked whether Mr Molobela whether he had approved it or not. He said that it was unheard of for an entity to sign off to a private company. Mr Koko said that it had been signed on behalf of SABS.

The Chairperson asked that Members remained focussed on the point at hand.

Mr Molobela conceded that the information was incomplete. The letter had been received from Minister Manuel, but he believed that ‘he who accused had to prove’ so he had been expecting the DG to prove that SABS Commercial SOC was not registered with PFMA.

Mr Mahlobo commented that the Committee could be there until the cows came home. It had to be accepted that the point about the legitimacy of the Commercial unit had to be shelved and the Board Chairman would have to return with proof. The main issue was the instruction given by the Minister for the Board to conduct a forensic investigation as it was in the public interest. It was unequivocal. The investigation had taken a long time. He wanted to know why it had taken so long and he wanted to know when the Committee would receive a copy of the forensic report.

The Chairperson informed Mr Macpherson that the Committee could not take the legal matter further as Parliament had to take legal advice and the Board Chairman had to provide documentation that he had on the issue.

Mr Macpherson found it strange that SABS could go into its archives and find one letter but not the other. In terms of good corporate governance, documents that related to powers and authorisations ought to be kept close at hand.

Mr Radebe appealed for the Board Chairman to complete his presentation. The purpose of the meeting was not an inquiry but an oversight activity. If statements were wrong, someone had to prove that they were wrong. If the Minister’s instruction had not been executed, someone had to explain why it had not been executed.

The Chairperson said that the Secretariat would have indicated exactly what was required of SABS but since then the Committee had discovered the problem with the legalities and that the Committee needed to ensure that all the laboratories were accredited. The letter might have been sent directly to the CEO, but she was sure that the CEO would have briefed him. The Committee would invite the Chairperson again on the matter of the registration of SABS Commercial. The Chairperson had assumed that the CEO would be responding to the issues, but it was the CEO’s prerogative to ask the Chairman to respond.

Engagement with the SABS CEO
Dr Mehlomakulu asked for permission to speak. She took her position very seriously and the role of SABS as an organ of state. The PFMA and the SABS legislation informed what SABS did. She worked for the state and she believed that Parliament was equally available to the entities as it was to the officials. She believed that Parliament would prevent abuse of power by officials and prevent unconstitutional and illegal conduct on the part of government and protect the rights and liberties of citizens. Being the SABS CEO did not deprive her of her rights and she hoped that she could trust her Parliament to protect her constitutional rights and to hold government accountable and to make operations more transparent.

She continued that the Committee was dealing with SABS but, as the Chairman had said, the only people who had the right to present information were the officials of DTI. The previous day she had been asking what the questions were about and she had not been given information. She had merely been informed that there was a session for the SABS inquiry.

The Chairperson asked of whom she had asked that questions. The Chairperson reminded the CEO that she had asked at the beginning of the meeting whether the CEO had received the communication about the issues that had occurred in the Old Assembly Chamber. Issues had since arisen around the laboratories. If the CEO was saying that she had not received the communication, the Chairperson would have to institute an inquiry in Parliament. Had she or had she not received the communication via email or a letter?

Dr Mehlomakulu stated that she had sent emails back and forth to the Committee Secretary and she had been told that her emails were being sent to the DG who would answer her. She was transparent, and she could guarantee that from any of her managers. The email had come from her because she wanted to know if the DG kept throwing allegations that were not supported by any evidence. When SABS came to engage, the allegations had not come from SABS but from the DG, but SABS had to answer. The allegations were in the press and it was clear defamation, but no one bothered to find out what was going on. They just engaged through the media.

The Chairperson felt obliged to interrupt her. She had checked and the invitation containing the information about the meeting had been received and opened on the CEO’s laptop. The Chairperson had also told her in the Old Assembly Chamber that she would need to come back, so there could be no doubt about what was to be discussed. What had been added in the email was that other matters might be raised. Those matters would include the laboratories. She wanted the CEO to address those issues. She could start with the laboratories, but the meeting was not going down the route that the CEO wished to take it.

Dr Mehlomakulu stated that she had worked for government for quite some time and she understood authority, but she had asked questions for clarity and the questions had not been answered. She had been referred to the DG. Had she received the email? She was the one sending the emails and she had asked for clarification on the line item.

The Chairperson believed that no progress was being made. Had she or had she not informed the CEO when they had met in the Old Assembly Chamber that she would be required to return on that particular matter? She had said that the DTI would provide a status report and the CEO would be required to clarify matters. Did she not get an email confirming that and adding the other issue which was the laboratory?

Dr Mehlomakulu said there had been communication between her and the Chairperson’s office and she had asked Andre, the Committee Secretary, to clarify some items. She had received the email.

The Chairperson then read the email and asked what clarification she had required.

Dr Mehlomakulu had not understood the item about laboratories and she had not understood the meaning of “SABS inquiry” and she had been sent to the DG. She had also asked for the documents that the DG would be presenting. She had only received the DTI documents the previous day.

The Chairperson responded that the SABS inquiry was not an inquiry that Parliament was doing. It was an inquiry that DTI had informed the Committee, in her presence, that it would be undertaking. The email stated that the DTI was undertaking the inquiry. To the Chairperson, the email was very clear.

Mr Mahlobo said that there seemed to be a challenge. The communication might not have been adequate. However, the entity and DTI should work together. He appreciated the Chairperson’s reading of the email. The email was clear, and it was also clear that SABS did not have the requested report. The Committee did not want it to become a kangaroo court. In fact, it was totally inacceptable to send an email at the last minute asking the CEO to put herself on record without sufficient time for preparation. The word ‘inquiry’ did not mean the same as the forensic investigation. What was the basis of the finding that she had to report on? It was an important matter and the Committee could not have a situation where everyone said something different.

Mr Cachalia had two questions for the CEO. She could respond to the next time that she appeared before the Committee. In terms of the decision to institute a forensic investigation, the Board Chairman had said that the RFP (request for proposal) would take too long. In her experience, how long did it take to sort and implement an RFP. Would the RFP have taken longer than February to June, which was the time that their own forensic procurement processes had taken? Secondly, there were matters to be clarified and she or SABS had written a recitation of certain allegations, but the document produced, by the Chairman’s own admission, was insufficient to show that SABS had complied with what it had said it had complied with. There had been was time to bring the inconclusive document but not the conclusive one, which the Chairman now said that he would bring to a future meeting. If it was possible to do at that stage, why could it not have been done in preparing for the current meeting?

Mr Macpherson was reluctant to allow SABS to leave because it might be the last opportunity to speak to them if the Minister decided to suspend the Board. What the Committee had been able to establish was that there appeared to be a wholesale deterioration of corporate governance, values and ethics at the SABS. The SABS had lost 1 000 customers in the past two years, losing R50 million to the SABS. The Committee knew that trust had degenerated, and the image of SABS had taken a dive because of the Tegeta coal saga. The situation could only be laid at the foot of the Board and the CEO’s office and responsibility needed to be apportioned to those two structures. What the Committee had also established was that an exact line existed between SABS and state capture.

The Chairperson cautioned Mr Macpherson that it was a serious statement that needed to be substantiated.

Mr Macpherson continued. The Committee knew that an exact line existed between SABS and state capture because by providing a certificate under dubious conditions, SABS had allowed the Guptas to be paid millions. That was an undisputed fact as a result of the Eskom inquiry. The big question was what the CEO, as the accounting officer, had been doing for the past three years to allow it to happen.

The CEO’s own emails stated that she needed to protect senior and middle management from the scandal. That was more important than her responsibilities. He read the email, stating that she had been aware of the certificate for three years and had done nothing about it until the Eskom inquiry revealed the full story. She had stated in her email that the matter was getting serious ‘because of the publicity surrounding the Eskom inquiry.” Mr Macpherson asked whether she herself had not considered the matter serious. He asked the CEO and the Board Chairman why they should not resign that day. How did they believe that their continued existence at the SABS enhanced its image and did not bring further damage to the entity?

Mr Esterhuizen noted that the under-specification coal had been certified in August 2015. The scientific technician, Mr van der Riet, had tested all the coal and had found it under-specification but a few days later, it was put back into the Eskom supplies. Mr Esterhuizen had done oversight visits to power plants and knew that coal should not be outside a certain specification, but SABS had approved coal well below the specification. The coal must have been as hard as solid rock and definitely not suitable for the power stations. It was unacceptable that SABS had come to the meeting unprepared, having misplaced documents, etc. He believed that it was misconduct. It was not only in relation to the coal. In industry, no one trusted SABS anymore.

The Chairperson was not aware of the report that Mr Esterhuizen was referring to and she did not want discussion on documents that the Committee did not have before them.

Mr Radebe did not believe that the meeting could come to any determination. Colleagues did not want to let SABS to leave but he was concerned about the fact that the CEO’s requests for clarification had not been answered. Furthermore, the letter had only been written to SABS two days previously, even though the programme had been drawn up a long time previously. The Committee staff had been disorganised. Even when one went to court, one was given all the evidence. It was not an inquiry, it was just an oversight action. There was no question about the requirement for a report on the laboratories.

His colleagues had already linked SABS to state capture but that had to be dealt with in the State President’s Commission of Inquiry into State Capture that would begin in August 2018. If some people had to go to jail, then be it so. But it was not a matter for the Committee. When he was growing up, the stamp of the SABS guaranteed good quality. The issue of the laboratory had to be answered. The CEO had to answer directly whether the inquiry requested by the Minister had taken place. SABS had to come back in August with the report, even if there was a new Board.

The Chairperson stated that not everyone had been in the meeting when the issues were first raised. The Committee was focussed on oversight and the issue raised was that the protocol of the testing of the coal had not been observed. It was on that basis that the Minister had informed the Committee that there would have to be an inquiry by DTI. The Committee was equally alarmed because if protocol had been broken or flouted, it begged the credibility of the institution involved. It was critical that standards be maintained. The Committee was pleased with the Minister’s inquiry and he had promised to report back to the Committee before the end of that quarter. At the same time, the CEO had taken the opportunity to indicate that she stood behind her staff. She had said that she would be at the meeting to protect her staff. The Committee had asked the CEO to attend the meeting and to respond to the report, and other issues as oversight was never limited to an issue, but to the entity or department.

The Committee needed to know if all laboratories of SABS were accredited, and if not, what was being done about it. She believed that the CEO would have that information at hand.

Dr Mehlomakulu stated that the Committee had taken ten percent of the issue and made it the whole. The DG had started his presentation by stating what Mr Koko had said.

The Chairperson stopped the CEO as the Chairperson had indicated that she would give a ruling on that matter. The issue on the table was the accreditation of laboratories.

Dr Mehlomakulu stated that not all the laboratories were accredited. The reason was that there were costs associated with accreditation and only if a laboratory was used, was it accredited. Not all laboratories were used. Industry now had its own accredited laboratories and so SABS did not waste money on accreditation of laboratories. Only those where third-party work was done had to be accredited. 28 out of 31 laboratories were accredited.

The Chairperson accepted that as sufficient for a simple, quick response. However, the Committee awaited a written, detailed response.

Mr Macpherson asked when his questions would be responded to.

The Chairperson wanted to close off the laboratories. The report had to include details of each laboratory, location, costs etc. and any other pertinent information. The Committee agreed to await the written response on the laboratories.

The Chairperson asked for responses to the unanswered questions from Mr Macpherson, Mrs Mantashe and Mr Cachalia.

Dr Mehlomakulu stated that the letter from the Minister had been sent to the Board. The CEO would respond to the question of the contract. She had not received the information in time to respond to the DG’s report. She had her own work ethics. As far as her knowing about the invalid report in 2016, she would need someone to bring evidence that she had known about it. The Committee could not throw allegations at her that were not even supported. The Committee had a responsibility not to throw unsubstantiated allegations at her. She stated that Mr Macpherson was giving interviews and making press statements. He had made certain conclusions in the media, but he had only one side of the story. Why was Parliament engaging with one side of the story? Why should she lose her rights because she was the CEO of the SABS? She had to ask whether Parliament listened to the other side of the story.

She had listened to the Portfolio Committee meeting with the National Consumer Commission and the National Regulator for Compulsory Specifications on the Kuga vehicle fires. It had been a comfort to her that Mr Macpherson had understood the legislative change and what it meant. At that point the Chairperson had been really frustrated about the danger, and the CEO was not talking about the extrapolations of putting peoples’ lives in danger. There was not a single mention of the SABS which meant that Mr Macpherson understood that the extrapolation that SABS was putting peoples’ lives in danger was not true.

Mr Macpherson asked why she should not just resign.

The Chairperson said that the CEO should be allowed to complete her statement, although the Chairperson was getting a little confused.

Dr Mehlomakulu informed Mr Macpherson that she would not resign because the forces driving that request were the same as in other situations happening elsewhere in the DA where, when the woman was strong, the woman became …

Mr Cachalia and Mr Esterhuizen objected.

Dr Mehlomakulu said that she was saying that because Mr Macpherson had said specific things about her to the public and she did not know whether he …

The Chairperson reminded the CEO that it was not the purpose of the Committee meeting to engage on those issues. She could engage Mr Macpherson in his own right. He had not been representing the Committee. Only she spoke on behalf of the Committee.

Dr Mehlomakulu stated that when the issues had been taken to court and had been tested by the court, then the court could tell her to resign. But when certain agendas were being driven, using the public platform and as a citizen of the country, she had worked for the country all her career and she had done nothing and if people believed the untested allegations put to her, then they should take them to court.

The Chairperson stated that she did not interrupt people on the floor, but there had been three occasions in the last few minutes when, if it had been her style, she would have interrupted the CEO. The CEO had stated that she was a strong woman, but she had not engaged on the subject of the matter. She should have a bilateral with Mr Macpherson. She did not understand what agenda the CEO was talking about. If she was accusing the Chairperson of driving an agenda, that was a serious parliamentary issue. The Chairperson was driving oversight. The CEO had responded to Mr Macpherson stating she had no intention of resigning without a court decision. What was the issue she was going to respond to Mr Cachalia about?

Dr Mehlomakulu noted that the DG had made allegations and it was interesting to her that the Committee was not asking the DG for evidence of his allegations. SABS had been given the presentation the previous day and there were expectations that she should bring all the evidence required to defer the allegations. She was accountable and would produce the evidence but the entity had been established before her time and that of the Chairperson and so they were all going to the archives. The Board Chairman had been able to show that the DTI should know about the issue because the DTI Minister at the time had written to National Treasury. She objected to the onus being put on SABS to defend hollow allegations when SABS had not made the allegations. Some Members took the allegations as true. There was defamation in the media. She was talking about the interviews that Mr Macpherson had given.

The Chairperson asked the CEO if she had completed.

Dr Mehlomakulu added that that Committee was their Committee and her expectation had been that it would bring balance of perception. On the Tegeta coal issue, the key issue was that Mr Koko lied. The DG’s memo stated that it could not have been possible for the SABS to have approved, but people ignored that and went to her trying to protect staff.

She knew how Mr Macpherson distorted what she had said in the emails. She was trying to be as transparent as possible on the issue which was of national importance and she had not known in 2016. So, for someone to extrapolate that, because it was in the Sunday Times she should have known, was stretching the law of accountability. Between her and the laboratory in question were four managers. It was in Mpumalanga. She had called the people into her office and to try and extrapolate her closeness to the issue was malicious. Her question to the Committee was: when the truth came out, what would people who had talked about corruption and that had affected her management career do?

The Chairperson believed that she had allowed the CEO time to respond. She advised everyone to leave the truth out of it as the truth was highly subjective. She wanted a discussion based on facts. She was not in a confessional hearing and did not want to hear confessions. She advised Mr Macpherson not to deal with the media issue as she had made it clear that the media issue could be dealt with outside of the Committee meeting.

Further discussion
Mr Macpherson stated that the Sunday Times article had appeared in 2015 and there had been an application to the Press Council Ombudsman because people had believed that the story was untrue. However, the Ombudsman had ruled that it was true. So, for three years, SABS had known about the issue. The CEO could not say that she had not known about an issue published on the front page of a newspaper three years previously.

The Chairperson did not want to go down that road.

Mr Radebe explained that he was from the Free State, an Afrikaans place where one could not believe what one saw in the ‘koerant’ (newspaper). The oversight issue that the Committee had dealt with was that of the laboratories. It had been dealt with adequately and the Committee expected a full report in due course. The Board Chairman would have to deal with the other issues. He reminded everyone that the only person in the room who could speak on behalf of the Portfolio Committee was the Chairperson. Parties could make their own statements. However, people invited to appear before the Committee had to be protected. It was unfair to ask someone to resign without due process. It was unfair and no one could do that. The Committee needed all the details when SABS returned.

Mr Cachalia welcomed the Chairperson’s direction to look at facts. He wanted to look at and be clear about the facts. The loss of revenue and the loss of customers were facts because they were tabulated. The Chairperson had spoken of ‘broken protocols’. What the Committee was trying to get at was what the broken protocols were. Those broken protocols were complicit in the value chain to supply coal from the Tegeta Mine to Eskom via accreditation and certification from SABS. That was what the Committee was looking at. The other fact was that the employees that whistle-blew the matter had been suspended and prevented from speaking to the media. And, in response to Mr Radebe’s point about lies in the newspaper, he explained that that was why the country had Ombudsmen. The Ombudsman had looked at the allegations of lies and allegedly incorrect reporting and determined that it was a fact. That was why the country had ombudsmen in various institutions. The Committee should stick to those facts.

What was required was for the Board Chairman and the CEO to go back and prepare fully. The Committee needed the full details of the letter that apparently invalidated what the DG had written. If that could be provided – he still could not understand how one letter was provided but not the other – then he should present it to the Committee. In the interim, Mr Cachalia moved that the Committee supported the Minister’s notice of intention to suspend the Board. Could the Committee support that?

The Chairperson noted the proposal and it would be dealt with in due course. The Chairperson called on others waiting to speak.

The DG of DTI suggested that the first issue was to get the terminology of what they were dealing with correct. It was not his job to determine the agenda of the legislature. However, the agenda indicated ‘Eskom inquiry’. There was not a SABS inquiry. He was clarifying ‘forensic investigation’ versus ‘inquiry’. When he had received the emails, he had suggested that it be called the ‘Eskom inquiry’ because what they were dealing with was Mr Koko’s testimony in respect of the matters related to SABS. On 24 January 2018, Mr Koko had made the claim that he was relying on a SABS test report. On or about 13 February 2018, the Minister had requested a forensic investigation. All they wanted to know was what the circumstances were surrounding that test. That was the only issue. How did it happen? Why did it happen? What protocols were or were not followed? Who had been responsible for it? If there had been any breaches, what had happened consequently? That had been communicated in a letter dated 16 February 2018.

Thereafter National Treasury had raised an additional matter. Treasury stated that SABS had not disclosed that test, even when specifically asked. The Minister, therefore, wanted to know why SABS had not co-operated with National Treasury. Why had they not disclosed the test? The Minister wanted to clear SABS’ name or, if there had been a breach, he wanted to know how SABS could remedy it. He had not made accusations against anybody because he was not accusing anybody.

The third point in relation to SABS Commercial SOC had arisen because the DG of National Treasury had complained in his letter that SABS had not cooperated. He had responded that National Treasury was responsible for all entities under the PFMA, so he could not understand why National Treasury could not instruct SABS Commercial SOC to provide the information. It was at that point that Treasury had informed the DG of DTI that Treasury had never dealt with SABS Commercial SOC and that he had to inform his Minister that the entity was not compliant with the PFMA because that the entity was not listed as an approved entity in the PFMA Schedule. If SABS had received approval, they needed to show evidence of that and then Treasury would be told that it was wrong, and that matter would be cleared up. He had made that point to the CEO in a letter dated 9 May 2018, but the CEO had not come back with the proof.

He suggested that all the requested information be provided so that people could be cleared, or dealt with, as the case might be.

Mr Molobela stated that if he had a letter stating that Trevor Manuel had approved the registration of SABS Commercial SOC and information to the contrary had been sent into the public, then it was improper. It was also improper if the DG had information in his office that he had failed to dig up.

The Chairperson said that she understood that the DG of DTI had communicated the problem to the CEO in May 2018.

The DG confirmed that he had sent the letter to all the relevant parties, including the CEO and the Chairperson of SABS.

Responses by SABS Board Chairman
The Chairperson asked the SABS Chairman to take the DG’s comments into account when responding.

Mr Molobela asked that he could begin by confirming the timelines in response to Ms Mantashe’s point. He had received the letter from the Minister regarding the forensic audit and he had responded on 28 March 2018. The SABS Board had resolved at a special board meeting on 12 March 2018 to undertake a forensic investigation and had appointed a sub-committee to finalise the terms of reference based on the information provided by the DTI. On 23 March 2018 he had sent a letter to the Acting Head of Legal Services at DTI. He read the letter to the Committee. It stated that the SABS Board was dealing with the matter and would appoint forensic investigators. He had sent the procurement request through in May 2018. He had a file on the actions.

He felt, however, that no matter what he said, there was a pre-determined result. Mr Macpherson had been talking about the dissolution of the Board for the past three months and he had got what he had wanted. Unfortunately, Mr Molobela only got R8 500 per sitting of the Board. From all his other Boards, he got R30 000 per sitting.

The Chairperson had already cautioned her own Members. She had spoken to the CEO. She could not believe that the Board Chairman could not understand the cautions. If he had a problem with what Mr Macpherson had said in the media or elsewhere, it was not of relevance because that was not a Committee position.

Mr Molobela retorted that Mr Macpherson had said in the Chamber that the Board should be reconstituted. On what basis had he been saying that three months earlier? Mr Macpherson had made a comment when the CEO was speaking about her career, saying she no longer had a career. It was painful. They were human beings.

The Chairperson enquired whether the statement had been made in the meeting. She had not heard it. In fact, she had struggled to hear the CEO and had asked her to speak into the microphone. It was not pre-ordained that the Board would be dissolved. Or was he saying that she took her instructions from Mr Macpherson?

The meeting dissolved for a few minutes as everyone engaged in discussions.

Mr Molobela stated that he felt more relaxed now that Mr Macpherson had been dealt with. The certificate which declared the Tegeta coal usable had been based on an ad hoc sample. How could an ad hoc sample be representative of the coal of the mine? Even at the most basic level of understanding that could not be evidence of the quality of the coal. As per the mandate of SABS, if someone brought a sample to SABS, SABS would have to test it. However, SABS could not know what the test was going to be used for. SABS could not refuse to test a sample because they did not know where it had been taken from and for what it would be used. If Eskom claimed that those two samples were evidence, that was ridiculous. And it did not matter when it was done, even on a Saturday night, because it was an ad hoc sample. If people did not want to believe it, then that was not his problem.

They were looking at a CEO who had been there for nine years and had only a few months to go in her contract. She had brought the turn-over of SABS up from R 260 million to R 560 million. They were looking at a CEO who had digitised the platform of SABS and Members could go on their cell phones and check that.

The Committee had been looking at a loss of R50 million, but they were looking at cash of almost R450 million. No institution in the DTI had that kind of financial strength. The Committee could not use that as the basis to talk about a dysfunctional organisation. SABS could have squandered that money. Members had to contextualise when they were criticising people. They had budgeted for a loss of R64 million, which had incidentally been approved by DTI, because of the wrongful SANUS suspension. SABS had counsel’s opinion that SABS had been wrongly dealt with. SABS had not been given a chance like everyone else was given. SABS had been suspended in Cape Town because they had had two environmental officers instead of four, whereas SABS had six environmental officers sitting in Pretoria that the entity could have redeployed. He urged that Committee to contextualise all of that.

The thing had been pre-determined, and he was not going to say by whom, but certain people in Cape Town who knew what was happening. SABS had a resignation by Mr Guy Harris, the one who was prosecuting the Mayor of Cape Town. He had resigned on the basis that SABS was not following the Minister’s instructions. Mr Molobela asked how Mr Harris had known what the Minister had wanted because he had not met with the Minister. Mr Molobela had met with the Minister.

The situation had to be contextualised. Most of the people that SABS had lost had come back. Industry associations were bullish about SABS. When talking about state capture, they should be talking about people who had access to certain power. Because of the digital platform, the DG could not phone SABS and ask them to make a plan and that was frustrating certain people. SABS was going to set up protocols because they could not have a situation where the Minister could not influence certain events because, strategically, that was what he needed to do. Those protocols had not yet been done but they were already being told to resign. Mr Molobela was a lawyer. He was a chartered engineer. He did not want the job. He chaired three other companies. So, in a sense his service had been turned into a ridiculous situation. His name was being dragged in the mud due to a misunderstanding of the financials. He was leaving an organisation with R450 million.

The Chairperson thanked Mr Molobela. He had had a chance to respond to the issues. Many questions remained unanswered. The Committee had also requested certain things. She had heard comments from people who were quite passionate about things and did not believe that the point that they were making was understood. As a lawyer, Mr Molobela should know to moderate the language and tone when discussing sensitive issues, otherwise it got out hand. The purpose of the meeting had not been achieved. Probably only 25% of the purpose had been achieved.

Summing up and the way forward
The issue around the accreditation of the laboratories required a detailed report. The issue raised by the Minister about the SABS certificate on the Tegeta coal had raised many questions. The investigation had not yet been conducted but the issues were serious as protocols had not been observed during that testing. As it had happened in Mpumalanga, the CEO did not have the information, although one would have assumed that being in the earlier Committee meeting, as CEO, she should have followed up on that. That matter had not been fully addressed. SABS had been one of the top performing entities in the DTI in previous years. Although the report about the coal certificate was a surprise, everyone was keen to get the outcomes of the internal inquiry and the later forensic investigation by DTI. SABS had only just begun the inquiry. The Committee had also been informed that the Minister had taken a decision to consider the suspension of the Board and was awaiting responses from the Board.

The Committee had been unable to go any further, so the matter remained unresolved. She could not see the matter being resolved within three weeks. The Committee sat again on 31 July 2018. At that time SABS would get an email indicating a date when the DTI would return with a status report.

The SABS CEO was responsible for Mpumalanga and other areas and it seemed that she would have wanted to investigate the situation. She understood Dr Mehlomakulu’s passion for SABS and, given that the credibility of SABS was at stake, the Chairperson expected a report from her. It was not an inquiry; it was a constitutional obligation of the Committee. She also expected a full report on the investigation from the Board Chairman and that he brought with him any documentation that might be required. The documentation had also to be sent to the Committee beforehand.

The Chairperson also required the Board, the CEO and DTI to study the PFMA, and any amendments, as the Act pertained to government departments and state-owned entities. The Committee would consult the parliamentary legal advisor. The Committee might also bring in Treasury, depending on the legal opinion. The Minister and the government was adamant that SABS was one of the critical entities and its reputation had to be restored.

The Chairperson continued. All MPs were entitled to comment on anything that happened in Parliament. She had a whip who commented for the ANC and was the spokesperson for the AMC in the Committee. The DA spokesperson was Mr Macpherson and Mr Esterhuizen for the IFP in the Committee, and Ms Ntlangwini for the EFF. But every MP was entitled to make statements and she could not discuss those statements in the Committee. The third point was with respect to the media. She would be the first to say that the Ombudsman was a very important institution. However, she had seen serious errors in comments that she had made. She was saying that in earlier times, editors would have demanded that work be checked, but it did not seem to be the case any longer. However, some journalists had a very good reputation.

The Committee had to work in a balanced way and any media statements on that meeting had to reflect the ruling in the Committee that Members had been given insufficient information to make a ruling.

Motion to support Minister’s decision to issue SABS Board with notice of intention to suspend
The Chairperson had a proposal on the table. She asked Mr Cachalia to repeat his proposal.

Mr Cachalia’s proposal was that the Committee supported the Minister’s decision to issue SABS Board with a notice of intention to suspend the Board.

Mr Macpherson seconded Mr Cachalia’s proposal.

The Chairperson asked if there were any objections.

Mr Radebe stated that there was no way that the ANC could support the DA’s proposal as that was not what the meeting had been about.

Ms Mantashe seconded Mr Radebe and stated that the Committee should leave space for the Minister to do his work.

Mr Esterhuizen said that it was not an Eskom inquiry. Once the Minister had engaged with the SABS issue, it became a SABS inquiry and the Chairperson should engage with the report. The DG had found that SABS had deliberately mislead National Treasury. The Committee should not talk about a DA motion. It was a Committee motion and for that reason, he supported it.

The Chairperson stated that there was a motion and there was an objection by the ANC while Mr Esterhuizen had supported the DA motion. There were two positions, so the Committee needed to vote. She asked for a show of hands supporting the motion to show support for the Minister in respect of his decision to issue a notice to the Board declaring his intention to consider suspending the Board. Three Members supported the motion: two DA Members and the IFP Member. She asked who did not support the motion. Four ANC Members opposed the motion. The motion was defeated.

However, the Chairperson indicated that the Committee would ask for a copy of the Minister’s letter.

Mr Radebe stated that there was no ministerial letter in front of Members so there was no way that they could take such a decision.

Mr Macpherson was concerned about the fact that the Minister had asked the DG to communicate the situation to the Committee, but the Committee had chosen not to believe the DG or accept his report. It was very dangerous, and it was a concern to him.

Mr Cachalia enquired whether, if and when the Minister produced the letter, he could take it that the ANC Members would support the motion.

The DG said that SABS Act stated that the Executive Authority had jurisdiction in respect of the Board. The Minister would exercise his powers. Prior to the meeting, the Minister had told the DG that if people asked about the situation, he could report on what the Minister had decided, but the DG was not sure whether the Minister had yet formally communicated with the Board.

The Chairperson stated that the Committee did not have the information before it, and she had had to follow the rules of Parliament.

The meeting was adjourned.
 

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