SIU Update on ESKOM investigations

Public Accounts (SCOPA)

14 October 2020
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

Video: Standing Committee on Public Accounts, 14 October 2020

In a virtual meeting, the Special Investigation Unit (SIU) provided the Committee with an update on its investigation into Eskom in relation to corruption, fraud, mismanagement at other irregularities. The presentation detailed how four officials pocketed R44m as ‘gratification’ related to protracted delays in the utility's build programme of new power stations and how several Eskom executives pocketed R100m in ‘kickbacks’ related to the parastatal's procurement of a cloud computing system. The kickbacks were part of 39 cases of alleged corruption, fraud and racketeering that have been referred to the NPA for possible prosecution. Another 32 have been referred to the Asset Forfeiture Unit for the attachments of assets which have been red flagged as proceeds of crime.

The SIU says it has referred more than 5 000 Eskom employees for disciplinary action and investigation for offences ranging from the failure to declare their interests, to doing business with Eskom and leading suspicious lifestyles. The unit is also investigating 20 build contractors, 14 coal transportation service providers, seven diesel suppliers, three coal supply contracts, two contracts for cloud computing and two contracts at Majuba and Matla power stations.

MPs heard that out of Eskom’s 43 795 employees, 5 452 failed to declare their interests while 324 officials were linked to entities that were Eskom vendors. Among them, 135 employees were found to be doing business with Eskom, which amounted to more than R6bn. Seven of them have already been referred to the NPA and the SIU said all officials doing business with Eskom would be referred for possible prosecution. Eskom commissioned lifestyle audits on all executive management and red-flagged 34 individuals for further investigation. The SIU says eight people have been referred to Eskom for disciplinary action, another seven resigned and 19 people are still being investigated.

Members asked if the SIU is capacitated to deal with all of the matters on its plate; fraudulent building contractors, and Cloud computing kickbacks.

The Committee also asked the SIU if it is certain recoveries will be made, and if Eskom will follow through with its disciplinary hearings. Members asked about the fact there did not seem to be a process in law which protects the state coffers from abuse. Officials who resign before being disciplined can merely move on to another job and continue to pilfer from the state purse. The Chairperson urged Committee Members to consider how to address this issue, even if it means drafting a Bill. This matter needs to be dealt with more directly.

The Committee asked for a list of the names of the officials the SIU identified, and undertook to follow up with Eskom on its progress in the Committee’s meeting with ESKOM on the following Friday, 16 October.

Meeting report

The Chairperson welcomed the Head of the Special Investigation Unit (SIU), Adv Andy Mothibi and his team, to report on the SIU’s investigation at Eskom. Adv Mothibi thanked the Committee for the chance to brief the Committee on its investigations at Eskom, which are going on according to Proclamation R11 of 2018. This proclamation mandated SIU to conduct various investigation focus areas. He introduced his team, comprising of: Ms Claudia O’Brien, the lead investigator in this investigation who would present, Mr Leonard Lekgetho, Chief National Investigations Officer, who provided oversight of the investigation, and Mr Kaizer Kganyago, Head: Stakeholder relations, SIU.

Briefing by Special Investigation Unit (SIU) on progress regarding investigation reports on ESKOM
Ms Claudia O’Brien thanked the Committee for the opportunity to brief the Committee on progress made in the investigation.

SIUs mandate under the proclamation
Proclamation R11 of 2018 (6 April 2018) mandates the SIU to investigate:
-The procurement of coal
- The procurement of coal transportation services
- The procurement of diesel
- The appointment of McKinsey, Trillian and Regiments
- Maladministration, failure to deliver, and defective performance by service providers at the Medupi, Kusile and Ingula Power Stations, and the High Voltage Transmission Projects at Medupi, Kusile and Ingula

Focus areas for investigation
-135 officials doing business with Eskom, received in excess of R6 billion.
- 34 red flagged former or current Eskom officials as a result of a lifestyle audit conducted by ENS at the request of Eskom
- 5452 Eskom officials who failed to submit their declarations of interest
- 3 Tegeta Coal Supply Agreements (CSAs): Brakfontein, Optimum, and Koornfontein
- 20 building contractors relating to 29 packages
- 14 coal transportation service providers
- seven diesel suppliers
- two contracts for Cloud computing, software support, and licences
- Two engineering contracts at Matla and Majuba

Conflicts of interest

324 Eskom officials were identified, linked to entities which are Eskom vendors. 135 of these officials conducted business with Eskom to the value of at least R6 billion.
5452 Eskom officials failed to submit declarations of interest.

There were 5512 referrals to Eskom to institute disciplinary proceedings. 60 of these referrals are in respect of officials who are either doing business with Eskom, or failed to declare interests in outside business entities. There are 134 officials whose cases are still in progress, and others which the SIU still needs to get to.

Eskom commenced with disciplinary proceedings in 15 of these instances. 11 matters are ongoing and four are complete. Of the complete cases, two officials were found to be guilty, and two not to be guilty. Six matters were closed by Eskom due to resignation, or attrition of staff. Four officials resigned.
Management decided not to implement disciplinary proceedings in four instances.

National Prosecuting Authority (NPA) referrals
The SIU referred seven officials. Criminal referrals will be made against all officials who are found to do business with Eskom. In cases where officials resigned, if there is evidence those officials did business with Eskom, criminal action will also be pursued against the officials.

Lifestyle audits
Of the 34 officials referred to the SIU from the audit, eight were referred to the NPA, and seven officials resigned. 19 investigations are still ongoing, and in appropriate instances the SIU will refer to the NPA.

Progress: build projects: fraudulent claims
The SIU identified a number of false declarations involving a Director of the Build contractor and a former Eskom official. It also identified fraudulent claims submitted by the Build contractor, totalling R66.9 million. Evidence points to money laundering, and racketeering. Claims submitted by the Build contractor regarding a further three contracts are still under investigation.

Outcomes: NPA and AFU referrals
The SIU made five referrals to the National Prosecuting Authority and five to the Asset Forfeiture Unit. The evidence points to the commission of crimes of four individuals and one company.

Outcomes: civil proceedings
The SIU is currently referring evidence to the State Attorney to institute proceedings against the relevant parties, to recover money.

Progress: build projects: multi-national company
A multi-national company contracted by Eskom at Kusile reported the findings of an internal investigation conducted by it to the SIU.
The investigation revealed corruption on the part of high-ranking officials of the Company and of Eskom, as well as two sub-contractors to secure a contract.

Outcomes: NPA referrals
The SIU is supporting the criminal investigation and is handing further evidence over to it. It is also working with the NPA, AFU, South African Revenue Services, Financial Intelligence Centre, Hawks, and the Federal Bureau of Investigations, as well as the prosecuting authorities in Germany and Switzerland, in relation to witnesses or suspects who are foreign nationals.

Outcomes: civil proceedings
Counsel was briefed by the SIU to set aside the contract and recover over-payments in excess of R1 billion made to the contractor. Settlement agreements are currently underway.

Cloud computing, software, and licensing
Progress made and evidence in these investigations suggests a payment of kickbacks totalling R100 million, paid to a sub-contractor to secure Eskom contracts. Criminal referrals are being prepared and civil remedies will be considered after the investigation is complete.

Counsel was briefed on six matters as part of systemic recommendations. In this process, some companies tend to come forward to offer information in the hopes of settlement. Adv Mothibi promised settlements will be in the interests of justice.

For the full presentation, see attached document.

Ms B Van Minnen (DA) commended the work of the SIU and said it was always a pleasure to hear from SIU.  Firstly, she asked if SIU is capacitated to deal with all of the matters on its plate. It is dealing with several departments and investigations across the board. Although the internal proceedings and criminal investigations take place, the civil litigation is really what sees taxpayer money returned. She asked what the realistic possibilities are of actually reclaiming money, for instance, in the case of Brakfontein.

With Koornfontein, she asked what the reason was for the failure to deliver the tonnage required. On the Kusile gratification matter, she said she realised two officials were referred to the National Prosecuting Authority (NPA), but asked what is happening with the other officials. She understood some resigned, but asked if the officials were still referred for criminal investigations.

On the fraudulent building contractor, she assumed the contractor was no longer working either with or for Eskom. She asked for confirmation.

Lastly, with Cloud computing and the R100 million in kickbacks, she asked what the realistic chances of reclaiming money are.

Ms N Mente-Nqweniso (EFF) said she would like to hear more from Eskom, regarding far it is with dealing with the referrals. She suggested the Committee find time to deal with the NPA and other entities involved.

Mr S Somyo (ANC) thanked the Committee for its update. He asked when SIU investigates, if it proceeds to make referrals to the NPA or Asset Forfeiture Unit (AFU).
On the SIUs part, it will proceed with what it is empowered to do itself. This process involves handing over cases to other parties, which may not move as fast.

He asked how far Eskom is in addressing the SIUs referrals. It has done encouraging work.

Ms T Marawu (ATM) asked Adv Mothibi if the SIU has any timeframes relating to the recovery of money.

She was also worried about the SIUs capacity to deal with these cases.

Lastly, she asked if it was satisfied with the pace at which Eskom implemented disciplinary processes, looking at the 134-progress report, considered against the 5512 referrals.

Ms B Zibula (ANC) asked how much money was recovered. SCOPA is not only concerned with termination of employment, but money must also be recovered. It will be necessary to continue engaging with the NPA to ensure prosecution also takes place expeditiously. Of the seven who resigned, she asked what positions these persons hold within the organisation.

The Chairperson thanked Members and added three concerns from his side.

Firstly, he welcomed the work done by the SIU, and its readiness to report. The problem comes in when thorough investigations such as what the SIU did, are placed on the conveyor belt of consequence management and successful prosecutions. The result is then investigations do not gain the necessary traction when it comes to ensuring people are arrested, and recoveries are made. Therefore, while there is a heightened mood of positivity about the arrests which were seen by the Hawks, amongst others, the real question is if these arrests will result in arrests, successful prosecution, termination of improper contracts, and recoveries.

He asked Adv Mothibi if SIU could give the Committee its assurances the SIUs investigation was thorough in obtaining its evidence, as SCOPA sometimes receives reports of the NPA struggling to make successful cases, because there was not enough evidence, or because investigations were conducted shoddily.

Finally, he asked about the synchronised law-enforcement agency. He asked if it receives co-operation from Eskom itself in the work it does.

Capacity of SIU
The capacity for SIU to do the work is presently sufficient. However, the SIU identified it needs improvement. To this end, the SIU quantified the headcount and skills which will be required to address the new proclamations which arose. It recently advertised 25 posts focusing on forensic accountants, legal specialists, and cyber work, which needs to be done; the imaging of computers; and the following of information through digital platforms. Although it has capacity at the moment, it is seeking to improve it.

Timeous completion of work
When focusing on the Eskom case specifically, Ms O’Brien being the lead investigator was helpful to ensure continuity. She was supported by the Chief National Investigating Officer, Mr Lekgetho.

Mr Lekgetho is also supervising a number of other investigations such as the COVID-19 funds investigation. Because of the magnitude and public interest of these cases, and due to COVID-19, the SIU rearranged resources from other cases to ensure these cases are covered. Where the SIU has not had internal capacity, it has a panel of service providers upon whom it can rely. It does not do so lightly however, as the panel does not come cheaply. When needed, it provides specific expertise which the SIU does not ordinarily employ. The SIU has really made an effort to conduct a balancing act to ensure it does not slow down regarding Eskom. He said he felt the balancing act which it engaged in, showed its success in the results it presented to the Committee.

Civil litigation
Adv Mothibi apologised for not introducing the SIUs Chief Legal Officer, Dr Jerome Wells, who was also present at the meeting. Advocate Mothibi said Dr Wells has something to say on this point, since SIU has control over civil proceedings from start to finish. After conducting its investigations, the SIU can proceed with civil litigation either through the ordinary courts, but more recently, through the Special Tribunal.

Where the contract is set aside, as in the case of the Brakfontein contract valued at R3.7 billion, a just and equitable determination by the courts follows. Here the legal teams and Eskom indicate what the value delivered is, relative to what is outstanding, depending on what was delivered, with the balance recovered according to legal standards.  Ultimately a just and equitable order is arrived at. Although SIU wants to see this done quickly and speedily, it is subject to court processes. Now the SIU can take matters to the Special Tribunals, it tends to see matters adjudicated upon speedily. He asked Dr Wells to provide current status and steps taken to process recovery of money.

Dr Jerome Wells spoke to the setting aside and execution of judgments obtained by the SIU. It involves a process of quantification of losses suffered by Eskom. The process is presently at an advanced stage. Once the amount is determined, this will form the basis of the claim against Tegeta, to recover any losses suffered by Eskom.

This process should be finalised in the next month or two months. It is a going concern. Tegeta has assets including the Brakfontein mine, and two other mines. It is under business rescue at the moment, but the business is still functioning. He is convinced however, there will be a substantial recovery.

Adv Mothibi asked Ms O’Brien to comment on the issue of a wrong delivery to Eskom.

Ms O’Brien said, during the course of the execution of the contract, it became clear Koornfontein was running out of contractually compliant coal. In other words, coal of the right quality. This matter is still under investigation, however, coal supply ended due to the business rescue proceedings Koornfontein is under.

Criminal kickbacks and cloud computing
Adv Mothibi said investigations are continuing and there will be criminal referrals as kickbacks are criminal in nature. It must be referred to the NPA. It will also pursue any civil litigation needed, however, the kickbacks are of a criminal nature and the SIU will ensure those involved are prosecuted.

List of names of referred officials
Adv Mothibi committed to send the list of officials referred by the SIU to the Committee.

Referral follow-up
The SIU’s strategy, implemented from four years ago, worked. The SIU follows up on referred cases. Results seen recently were as a result of collaboration between the NPA and the SIU. It continues to work together with the NPA, and now the Investigative Directorate (ID).

There is a balancing process played, as sometimes it is not desired to proceed quickly with the civil process in case it prejudices the criminal process.

The SIU focuses mainly on the civil litigation, and the legal team works to ensure there is no prejudice in the two processes. This helped the ongoing collaboration which will continue. The SIU has a memorandum of understanding with the NPA, and it is including the Hawks into the memorandum. The teams meet regularly and there are not any red flags raised. This is encouraging as the teams are working well together.

Speed of reaching finality
The SIU observed the scourge of corruption. There is a seeming impunity to corruption. This is because the system is not showing consequences for corruption.

Declaration of business interests
The team did well to create a methodology used to determine if officials do business with the State and Eskom in this case. There are of course, also those who do not declare interests. Although finality of these matters is left to Eskom, the SIU works together with Eskom and monitors progress on the matters.

Timeframes of recovery
Recovery is subject to court processes and rules. The process goes faster in the Special Tribunal, and according to its rules. The SIU made sure these matters are dealt with speedily.

The SIU and Special Tribunals Act allows for some of the SIUs members to appear at the Special Tribunal or in ordinary courts. It still uses external counsel. When there is a matter for civil litigation, the SIU works through Dr Wells and the State Attorney to appoint a legal representative, to represent SIU. More often, the SIU will have one Counsel, but it happens in an instance like Eskom, Eskom also has its own counsel. This creates added capacity to ensure matters are handled effectively.

Satisfaction with Eskom’s disciplinary processes
Presently, the SIU has a team which is regularly apprised of Eskom’s progress. The lead investigator Ms O’Brien, and Mr Lekgetho when he is available, are also regularly apprised of Eskom’s process.

Resignations on lifestyle audits
The phenomenon of officials resigning in the face of disciplinary action is followed up on either civilly or criminally. It is noted by the SIU.
Unfortunately, by law, if you put in a resignation, it is very difficult for employers to reject resignations as the courts are not clear on this point. However, SIU does follow up civilly or criminally.

Consequence management
It would like to give the Committee assurances its investigations are sound. When it is a criminal matter, it presents the evidence to the NPA but it does not leave it there, as the NPA needs to assess if the evidence presented is sufficient for its processes. The SIU wants to see consequence management.

For the SIU, the issue is results based on tangible evidence, so prosecution and recoveries are made.

Synchronised law-enforcement agencies
With freezing and forfeiture of assets, overlaps between different institutions should be managed, so the desired results are achieved.

Translation into successful prosecution
Adv Mothibi was certain this would result in successful prosecution as the SIU strives to ensure the evidence handed over is secured credibly, so it can translate into successful prosecution.

Cooperation from Eskom
Adv Mothibi confirmed the SIU is currently receiving co-operation, as both Eskom and the SIU desires to see Eskom become a reliable service provider in the future.

Zondo Commission
The SIU was also working closely with the Commission. Everyone investigated, from officials to executives, and accounting authorities, must be held to account.

The Chairperson asked if there were any further comments as this meeting was in preparation for its meeting with Eskom on Friday. As there were no further questions, he suggested the issue of people who resign to avoid consequences is something which the Committee needs to address. The Committee may need to pin this down with Department of Public Administration, COGTA, and the Department of Labour. If this means a Committee Bill of some sort must be conducted, the Committee must apply its minds to this, so it can assist the disciplinary processes and consequence management. At municipalities, it is even worse. If it means employees need to be blacklisted, the Committee must do so. Individuals cannot have a blank page in applying for new jobs in the public sphere, as it is the same public purse.

The meeting was adjourned until its meeting on Friday with Eskom.


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