The Standing Committee on Appropriations met virtually with Eskom Holdings SOC (Eskom) for it to provide a follow-up briefing on the financial and operational progress since its last engagement with the Committee on 2 September 2020.
Eskom presented on various matters raised by the Committee in its invitation. The presentation contents included: deviations FY 2020/21 Q1 -Q3; expansions FY 2020/21 Q1-Q3; coal contract renegotiations; update on Medupi and Kusile construction; recovery of overpayment at Kusile and Medupi; impact of government’s decision to issue electricity generation licence; Wilge residential development project; progress on recovery of debt owed to Eskom; compliance with 2019 Special Appropriations Act conditions; and Eskom unbundling update.
The ensuing discussion by Members concerned: mitigating the risk of load shedding; risks of not having a consistent coal supply from South32 and mitigating the risk of going under business rescue; coal contracts and their review period; procurement and contract management; contract negotiations taking a bottom-up approach; engaging long-term contracts and how medium-term prices compare to the long-term contract prices; performance of contractors; including market testing within Eskom’s procurement policy; demographics of particular coal supplier contracts and impact of Eskom’s transformation agenda; progress of the transformation roadmap that the Department of Public Enterprises (DPE) unfolded; Eskom’s localisation percentage; Kusile and Medupi power projects; approved, unapproved or stopped expansions and the costs and implications thereof; unapproved deviations and project implications; high premium attached to the South32 deviation; impact of suspension on the conditional approvals for the deviations and expansions as given by National Treasury; deviations to procurement-related issues; consequence management; complying with the conditions attached to the Special Appropriations Bill; unbundling process and progress made; strengthening the supply chain processes at Eskom– particularly the appointment of the Divisional Procurement leads; debt level of Eskom and turning around of revenue collection; energy efficiency programme; recovery of, and investigation into, funds that were overpaid to e.g. ABB South Africa, Econ Oil and Energy etc.; possible collusion; elements of State Capture seen through the malfeasance and procurement-related misconduct; disciplinary steps taken against and suspension of Eskom employees found guilty of misconduct; contracting with Howden Power and Eskom’s failure to detect whether they had the requisite license; Eskom’s prerequisite checks and short listing process; setting aside Bid Corp 4786; National Treasury’s recommendation to investigate irregular, fruitless and wasteful expenditure; Wilge Residential Development Project and non-utilisation of that infrastructure by Eskom; intensive energy users procuring power from Independent Power Producers (IPPs);clean carbon technology, carbon capture, and emissions; tariff increase; disposal of the Eskom finance branch; and Eskom’s role in South Africa’s economic recovery.
The Minister of Public Enterprises said that, in terms of the deviations to be presented, Eskom was following necessary business processes required by the Public Finance Management Act (PFMA) No. 1 of 1999 should there be changes. Some of the changes were easily explainable and some of them went into history. The Minister recognised that habits and culture needed to change, performance management needed to take place, and Eskom needed to become a high performance organisation.
Members agreed that the Committee needed a full a day to engage with Eskom. The Committee would have to find time to continue their interaction with Eskom but noted the developments despite there being more to be done. The Committee would keep in touch with Eskom as they needed Eskom to have a full discussion with them in future.
The Acting Chairperson greeted everyone in the meeting. He asked if Eskom was present and who would be leading the delegation.
Prof Malegapuru Makgoba, Board Chairperson: Eskom, said that Mr Andre de Ruyter, Group Chief Executive Officer (CEO): Eskom, would be leading the delegation. He indicated he had another appointment at 10h00 to chair the National Planning Commission and that he would be available for the first hour of the meeting to represent the Eskom board. However, Mr de Ruyter and the rest of the Eskom team would be present to lead the Eskom delegation.
The Acting Chairperson took the opportunity to welcome everyone to the meeting that had been scheduled to meet with Eskom. The meeting arose out of the Committee’s past interaction with Eskom, where it had invited Eskom to report on the specific issues that it had requested Eskom to respond to. The information that was to be presented, and that Members had looked at, was very lengthy and he mentioned that it might take very long. However, during the presentation, he requested that the presentation be managed in such a way that the Committee is able to finish at least a sizable bulk of the work. This was because the Committee did not anticipate that it would be having such a lengthy presentation. He requested the Eskom delegate to manage the presentation, such that all important corners are reached, because it would likely take close to two days trying to unpack the presentation. He asked if there were any apologies.
The Committee Secretary confirmed that there were apologies from Mr S Buthelezi (ANC), Chairperson, and Mr N Kwankwa (UDM).
Mr Pravin Gordhan, Minister of Public Enterprises, said that the normal protocol was to ask the Minister to say an introductory.
The Acting Chairperson said that he would allow the Minister to make introductory remarks regarding Eskom, as he was just about to hand over to Eskom so that it could present.
Minister Gordhan said that the Committee would be receiving a presentation from Eskom on deviations and other related matters. Arising from previous experiences, he emphasised that, insofar as Eskom was concerned, these were necessary business processes required by the PFMA that Eskom had to engage in should there be changes. Some of the changes were easily explainable and some of them went into history. His second point related to the duplication in Parliament. The same presentation was made to the Standing Committee on Public Accounts (SCOPA). His appeal to the Committee was that the processes be rationalised so that Eskom Executives could get on with their work and, through the Ministry, account appropriately to Parliament as well. At some stage, with the Committee, this discussion could take place. He thanked the Committee for its invitation and handed over to Mr de Ruyter to take the Committee through the presentation.
The Acting Chairperson invited Mr de Ruyter to present.
Mr de Ruyter said that it was an honour and a privilege to present to the Committee on the various matters raised in its invitation. Eskom had a voluminous presentation covering a large number of different topics, which was intended to be transparent to promote as much transparency as possible. Eskom would be guided by the Acting Chairperson with regard to the presentation. Direction will be taken from him on whether to speed up or focus on particular topics.
Eskom Presentation: Briefing Meeting with SCOA
Mr de Ruyter led the presentation and also presented the: conditionally-supported deviations for legal and compliance, group capital, group Information Technology (IT), distribution, and generation; conditionally supported expansions for group capital, distribution, transmission, primary energy; Wilge residential development project; and compliance with 2019 Special Appropriations Act conditions.
Mr Calib Cassim, Group Chief Financial Officer (CFO), Eskom, provided an overview to the expansions and deviations, as well as the requests to National Treasury and status, and presented the impact of government’s decision to issue electricity generation licence.
Mr Phillip Dukashe, Group Executive: Generation, Eskom, presented the: deviations not approved for quarter one in terms of generation; and expansions not approved for quarter two in terms of generation.
Mr Bheki Nxumalo, Group Executive: Capital, Eskom, presented the: deviations not approved for quarter one and two in terms of group capital; expansions not approved for quarter one and three in terms of group capital; and update on Medupi and Kusile construction.
Mr Snehal Nagar, Head of Finance: Primary Energy Division, Eskom, presented the: deviations not approved for quarter one and two in terms of primary energy; conditionally supported deviations for primary energy; and update on the coal contract renegotiations.
Mr Riedewaan Bakardien, Chief Nuclear Officer, Eskom, presented the Deviations Not Approved for Quarter Two in terms of Nuclear.
Mr Segomoco Scheppers, Group Executive: Transmission, Eskom, presented the: Expansions Not Approved for Quarter One and Three in terms of Transmission.
Ms Nerina Otto, Acting Group Executive: Legal and Compliance Eskom, presented the recovery of overpayment at Kusile and Medupi.
Mr Monde Bala, Group Executive: Distribution, Eskom, presented the progress on the recovery of debt owed to Eskom.
Eskom’s deviations and expansions are undertaken on an exception basis: National Treasury introduced instructions on procuring through deviations. Single source procurement may occur when more than one supplier exists in the market that can perform the contract, but a particular supplier is identified as the preferred supplier for various reasons. Prior approval is required from National Treasury for single source procurement. Sole source supplier is where one supplier possesses the unique and singularly available capacity to meet Eskom’s requirements. National Treasury approval is not required for sole source procurement. Motivations must also be provided as to why procurement should be done through deviation. Equity condition reporting is implemented and reported on as required. For the financial year of 2021, Eskom entered into 1 109 new contracts resulting in a total of 4 034 existing contracts. Out of the 4 034 contracts, Eskom made applications for 30 deviations and 46 expansions. 33 expansions and 11 deviations are conditionally supported, eight expansions and seven deviations are not supported, five expansions and 10 deviations are supported, one deviation was withdrawn, and one deviation had outstanding feedback.
Deviations not approved for quarter one – generation: Eskom sent a request for approval to solicit goods from a limited market for the manufacture, supply, and delivery of air heater spares for Generation power stations. National Treasury recommended that Eskom investigate Howden’s conduct for supplying the spares even when it did not possess the required licenses and ensure that only service providers who possess the required licenses/accredited by the Original Equipment Manufacturer (OEM) for spares are approached. With the acquisition of Balcke-Dürr Rothemühle by Howden effective from 29 January 2021, the request for sourcing from a confined market to National Treasury is no longer required. A feedback report to National Treasury is in process to close the request.
Deviations not approved for quarter one – group capital: Eskom sent a request for a single source for services of an independent Environmental Control Officer (ECO) to monitor conditions of the Integrated Environmental Authorisation (IEA) for construction at the new Camden ash dam project. National Treasury said Eskom had ample time to ensure that a competitive bidding process is conducted when the contract expired in December 2019 and had to follow a competitive process. Incorrect procurement mechanisms were followed instead of using environmental panel. A new supplier was appointed in January 2021 through the environmental panel.
Deviations not approved for quarter two – group capital: Eskom requested services for the completion of the construction of the new ash dam phase one, being ash water return dams and auxiliary works at Camden power station. National Treasury said that Eskom has an obligation to ensure that any contract for goods and services is in accordance with a fair, equitable, transparent, competitive, and cost-effective system. It was appealed the first time then Eskom issued a competitive enquiry to the market. Contract to be awarded by 1 April 2021.
Deviations not approved for quarter one – primary energy: Eskom requested for approval to solicit services from a single source to offload six trains stationed at various Transnet Freight Rail Sidings. National Treasury recommended that single source was not supported but the closed bid supported by National Treasury was to be conducted for suppliers in Highveld Industrial Park for offloading of coal. The closed Request for Proposal (RFP)was however issued to both suppliers. Sable did not respond and a contract was concluded with Makoya Supply Chain (Pty) Ltd.
Deviations not approved for quarter two – primary energy: Eskom applied for a deviation to negotiate coal supply with a single source contract with South32 (tied colliery for Duvha Power Station). National Treasury said that Eskom should test the market and allow other suppliers to compete. National Treasury did not support the appeal, but rather supported the extension of the interim addendum by an additional 21 months with conditions. Eskom is in the process of reapplying for a modification of the existing agreement based on the capability of the mine. At this point, the mine will only be able to produce coal for the next four years. Eskom has gone out to test the market via RFP however this will not solve the reclaim capability constraint at Duvha. The RFP will be used to determine the long term coal supply options for Duvha Power Station.
Deviations not approved for quarter two – nuclear: Eskom requested for approval to solicit services from a single source for the transfer of all generator and transformer protection functions to a new digital protection system. National Treasury said that Eskom should do a market analysis that includes all the accredited service providers. Eskom applied the Eskom Generation Standard that supports the OEM and is currently awaiting the offer to then negotiate.
Expansions not approved for quarter one – group capital: Eskom requested for approval to modify a contract for the Main Civils Works at Medupi Power Station. Works were suspended on 1 November 2020 and Eskom is awaiting feedback from National Treasury. Eskom and the Contractor are in engagement to source an amicable agreement to end contract by 31 March 2021. Scope of work is being finalised to go on open market by 1 April 2021. Eskom also responded to the query relating to approval to modify a contract for the unit transformer system and earthing equipment for Kusile power station. National Treasury could not support this time extension. Eskom will continue to incur irregular expenditure until completion of the project due to non-compliance of the Irregular Expenditure Framework. On 24 October 2018, the Eskom Board approved modification number three to increase the contract period by 30 months. National Treasury granted a conditional extension of one month to 11 December 2018, subject to submission of additional information. The additional information was not submitted in time and the request was rejected on Appeal.
Expansions not approved for quarter three – group capital: Eskom applied to modify Task Order 237A for the provision of safety, health, and environmental services at Kusile. National Treasury recommended that Eskom conduct an open and competitive process to secure a service provider. Eskom also applied in terms of Task Order 237B for the provision of quality and/or inspection services at Kusile. Task Order 237B has the status of closed.
Expansions not approved for quarter two – generation: Eskom applied for a contract for conveying air quality improvement. As the contract already expired, the market was tested through an open tender process to establish a new contract for the remaining scope.
Expansions not approved for quarter three – transmission: Eskom applied for the Softmax Software solution for the supply and maintenance of support for the OPSX and Chartermax software system. As the enquiry for the services was out in the market, the commercial process for the transaction was followed through, and a new contract has been awarded. Eskom also applied for the provision of civil works at Merensky and Witkop substation. Eskom has complied with National Treasury’s decision. The market was tested through the existing civil works panel. Eskom also applied for legal services for Medupi Borutho Line. Modification request was rejected by National Treasury as it was received after the contract expiry date. Eskom is pursuing a different procurement mechanism to access legal services to see this transaction to completion.
Conditionally-supported deviations for primary energy – The projects included that Eskom solicit coal from a single source, South 32's Khutala Colliery, for supply to Kendal and other Eskom power stations. National Treasury supports the extension of the contract with South32 by an additional 21 months. A further project was to solicit coal through a single source from Seriti for supply to Lethabo, Tutuka and other Eskom power stations. The deviation is supported on condition that the reasonableness of the price is assessed, no other potential suppliers are disadvantaged and economic benefits continue with the cost-plus Coal Supply Agreements until the expected usage life of the power stations.
Conditionally-supported deviations for generation – The projects included the supply, delivery and offloading of lubricants. National Treasury supported the deviation with conditions and no further deviations on this commodity will be granted. A further project is to design, supply, install, commission and optimise high frequency power supply units at Matla Power Station for particulate emission reduction purposes. National Treasury supports the deviation on condition that the cost implications are reasonable and no other authorised agents are disadvantaged. Further conditionally supported deviations projects were presented with conditions.
Conditionally-supported expansions for group capital –Projects included the construction of miscellaneous structures at Kusile Power Station. Eskom is requested to provide feedback regarding the status of the delay damages assessment. A further project was the supply and delivery of coal to Kusile Power Station and/or any other Eskom power station. National Treasury supports the expansion of this contract for the remainder of the contract period, on condition that Eskom provide information. Eskom also applied for a turbine generator and boiler works at Medupi Power Station. National Treasury supports the extension on condition that these costs are independently verified.
Conditionally-supported expansions for distribution – Projects included the provision of maintenance and repairs to located high voltage oil-filled and XLPE cables from 44KV to 132KV, provision of a panel of electrical contractors for minor and major work within the reticulation portfolio, provision of legal services, and electrical contracts. The modifications, expansions, variations, and extensions were supported with conditions.
Conditionally supported expansions for transmission – Projects included the provision of physical security services for Eskom and National Key Points. National Treasury supports the expansion without the contingency amount and on condition that the reasonableness of price is assessed. Eskom must fast track the procurement process and ensure that a new contract is in place before the expiry of this expansion.
Conditionally-supported expansions for primary energy – Projects included a request for approval to modify a contract with Namane Commodities for the supply of coal to Kusile and/or other Eskom power stations. National Treasury supports the expansion of this contract for the remainder of the contract period on condition that Eskom provide information. A further project included the Expansion request for Duvha coal sales agreement with South32. National Treasury supports the extension for a period of nine months on condition that Eskom goes out to market on an open and competitive process within this period to establish the long-term contract. There was also a request for approval to modify a contract with HCI (Pty) LTD for the supply of coal to Kusile and/or other Eskom power stations. National Treasury supports the expansion of this contract for the remainder of the contract period, on condition that Eskom provide information.
Conditionally-supported expansions for generation – Projects included the: supply, delivery and offloading of lubricants to various power station; maintenance of air heaters and draught plant fans and the supply of spares for the same plant; and Supply, delivery, and off-loading of sulphuric acid to Eskom's coal fired stations. These expansions, amongst others, were supported with various conditions.
Eskom and National Treasury are engaging at a higher level to agree on the acceptable turnaround time to process the applications. Regular meetings scheduled between the parties. The finalisation of the appointment of the Divisional Procurement leads is complete and they are tasked with the responsibility to monitor compliance to the requirements of the Ministerial Equity Conditions which include, inter alia, deviations and expansions at a divisional level. Reconciliation of the National Treasury and Eskom registers take place. It has been agreed that regular feedback will be provided.
In terms of the update on the coal contract renegotiations, Eskom undertook a bottom-up cost of mining exercise on all existing short/medium term coal contracts. Engagements were held with seven suppliers (i.e. suppliers with high profit margins) to explore opportunities to reduce the contracted prices. Eskom approached suppliers on individual contracts; however, most of the suppliers were only willing to engage on a portfolio basis. This meant that the lower priced contracts would be included for re-opening on price discussions. This resulted in higher overall costs to Eskom. Eskom was unsuccessful in achieving the desired outcomes of renegotiating the prices down and therefore the direct savings value attached to the high priced contract renegotiation initiatives are now valued at 0.
In terms of the update on Medupi and Kusile Construction, Medupi now had five units in commercial operation and Kusile had two. The target commercial operation date for Medupi Unit 1 is July 2021. Medupi is expediting the Unit 1 commissioning schedule to achieve earlier operation. Regarding the defects on the bid programme, six major plant defects are applicable to Medupi and Kusile and one major plant defect is applicable to Ingula. Eskom is making steady progress in resolving the major new plant defect challenges: Major New Plant Defect Correction Plan is being executed and closely monitored; The availability and reliability of the synchronised units at Medupi and Kusile are gradually improving; Medupi unit three identified as a test case to implement defects resolutions and establish root cause analyses, before implementing all the solutions on the other units; In April 2020, Medupi unit three reached full generation capacity (793MW) after implementing design defect modifications. At this stage, the defect costs will be split on a 50%-share basis between Eskom and the contractor (MHPSA) at both Medupi and Kusile. The current estimation for completing the effective correction of the major boiler plant defects at Medupi and Kusile is 2023. Evaluation tests and inspections are being completed on Medupi unit three, and boiler plant modifications on construction units, four, five and six at Kusile are to be done before the commercial operation of each unit.
Regarding the recovery of overpayment at Kusile and Medupi, recoveries were emanating from corruption, malfeasance, and irregularities. In 2018, Eskom recovered an amount of R1 billion from McKinsey. In March 2020, Eskom recovered an amount of R171 million from Deloitte. Eskom recouped R3m of the R35m from Meagra and we are pursuing the balance. In December 2020 Eskom recovered an amount of R1.577 billion from ABB. Eskom is pursuing civil action against a number of former Eskom executives to recover large sums of money lost as a result of State Capture. Tenova initiated Dispute Adjudication Board (DAB) proceedings against Eskom arising from the engineer's rejection of certain claims and claims an additional R339 million above R1.1 billion paid on purported settlement agreements that Eskom alleges were not agreed to. The DAB will entertain certain preliminary defences first. The Special Investigating Unit (SIU) is investigating the directors of the company as it is suspected that they had colluded with Eskom personnel, through third party subcontractors. Tubular Construction submitted claims against Eskom in the amount of R240 million. Eskom successfully opposed the claim at DAB, and they notified dissatisfaction and SIU is investigating. Tubular has since been placed in liquidation. Eskom instituted action against Trillian to recover payment of R600m made on the pretext of Trillian being a supplier development and localisation partner to McKinsey. Eskom launched liquidation proceedings against Trillian on 17 January 2020. The inquiry in terms of section 417 of the Companies Act, commenced on 26 November 2020. Eskom issued a letter of demand to PricewaterhouseCoopers (PWC) in April 2020 demanding repayment of the sum of R95m that was unlawfully paid to them. It has since been established that Eskom paid PWC R108 million. Econ Oil and Energy Pty (Ltd) was split into the overcharging dispute and setting aside of tender bid corp 4786. On 14 December 2020, Bowman Gilfillan Attorneys provided Eskom with its Interim Report on the quantification of overcharging by Econ Oil in the amount of approx. R1.2 billion over a five year period. Eskom instituted arbitration proceedings against Econ Oil on17 December 2020 to recover this sum. Econ has not yet complied. If successful in the arbitration, these costs would be recoverable from Econ Oil in terms of the arbitration award. Regarding the validity of a contract for fuel oil between Eskom and Econ Oil, Adjudicator risk found that a contract existed between the parties. Eskom referred the matter to arbitration and denies that it concluded a contract pursuant to Bid Corp 4786. Presently Econ Oil is the only party opposing the review proceedings.
In terms of the impact of government’s decision to issue electricity generation licence to municipalities and private individuals, Eskom welcomes the addition of new generation capacity to resolve the current and emerging shortfall. South Africa has had private companies generating electricity for many years. The recent regulations allow municipalities to establish power purchase agreements with IPPs, instead of exclusively buying from Eskom. The involvement of Eskom will still have to be determined. Special tariffs will have to be determined should Eskom be required to provide additional services. The operational and financial impacts are at this stage unclear. In order to assess the operating and financial impacts of the proposed changes on Eskom it will be imperative to urgently establish a new overall market framework, restructure the current Eskom tariffs, and establish an appropriate subsidy framework.
The Wilge residential development project was undertaken in 2012 to build residential units to accommodate artisans during the construction of Kusile PowerStation. The contract was awarded at R260.46 million. The cost incurred to date is R632.64 million on the development of the flats and an additional R207.44 million on common infrastructure and related work. On 4 August 2017, the board tender committee resolved that Eskom should negotiate the termination of the contract, which was done. In December 2019, Exco approved the strategy not to continue with the construction of the Wilge residential development project and approved that the disposal process be initiated. Eskom has engaged with various departments to dispose of the property. Government is currently conducting their due diligence in accordance with the PFMA. Eskom has declared R840 million as fruitless and wasteful expenditure. This project was carried out at the height of the State Capture period. Certain time and cost modifications were approved. In 2019, Eskom appointed Bowman Gilfillan Inc. to investigate various allegations of fraud, corruption, and financial irregularities, pertaining to Kusile. Eskom also instituted disciplinary action against the General Manager of Facilities of which the Wilge project is part. The disciplinary process was concluded in January 2020 and the General Manager was found guilty and Eskom terminated his employment. Eskom is concluding disciplinary process on additional implicated employees, which process is at an advanced stage. Eskom has initiated a legal process recovering moneys from the General Manager concerned.
In terms of the progress on the recovery of debt owed to Eskom, as at the end of January 2021, the total payment levels were 96.54%. Regarding the overall revenue collection for households, out of Eskom’s customer base of 6.2 million small power customers, there are 5.8 million prepaid customers (94%). Post-paid residential customers only account for 4% of the customer base. On the Soweto Residential Debt, Eskom will continue to rollout split metering technology in Soweto. The current strategy in place is to convert the conventional meters to prepaid meters, therefore reducing further debt growth. The top three municipal debtors included Maluti a Phofung, Emalahleni, and Matjhabeng local municipalities. There were no problems with the government accounts. Government debt is largely due to administrative delays. Although the debt is in arrears, payment is eventually received. Regarding the compliance with the 2019 Special Appropriations Act conditions, Eskom has been able to comply with all of the conditions for the 2021/21 financial year to date.
The Acting Chairperson thought Eskom had partially covered the presentation that Members had received earlier, with the assumption that Members were able to interact with the entire presentation at some stage. It was not Eskom’s fault that it had not really finished the entire presentation but it was not anticipated that it would have that many slides. The Committee would themselves see how it would interact with the information and report that had been sent to them. He said that Members were to take five minutes each and that he would then see where things went from there.
Ms D Peters (ANC) commented that the Committee needed a full a day to engage with Eskom. She added that the Chairperson of the Committee, Mr Buthelezi, usually provided Members with a two minute break after such an extensive presentation so that questions were not repeated. She explained that she was just making an appeal so that the Acting Chairperson could learn from the Chairperson’s approach to long presentations.
The Acting Chairperson said that he was checking the time and thought that the Committee would be able to manage that in between the spaces. He noted Ms Peters’ appeal but said that he was worried about the time.
Mr Z Mlenzana (ANC) echoed what had been raised in that Eskom had actually met the mammoth task as per the Committee’s request. At this stage, the Committee was not able to bite and thoroughly chew all that it had asked as the dish in front of them was very rich. His premise to Eskom was that he knew that there was nothing wrong with him writing an open letter after he would have started on all of the detail. He explained that he would write a detailed letter to Eskom which he would file through the office of Committee Secretary, expecting that Eskom would take time as per their agreement with the Committee Secretary to resort back to him. Hence, he lifted a few issues because of time. If Eskom could take the Committee to confidence, is the Committee about to see an end to load shedding? Members were public representatives and these questions were asked time and time again. If yes, is there a programme to realise such a time where it could be said that there is no more load shedding? This linked with another question of a lighter note. He had listened carefully when a response to coal contracts was given. Of the seven suppliers, is there a table that told the Committee which the longest serving contract is or is it on the longest serving contractor? What is the review period of such contracts? If the Committee could be given some kind of exit way where they also saw themselves out. He saw that, as Eskom, negotiations were more from a back foot than the coal suppliers who were at the upper hand – especially when listening to the tone of and manner in which negotiations were ensuing.
In terms of expansions, he had picked two points as he had had the benefit of being part of the Select Committee on Appropriations in the fourth term of Parliament, which was when everyone was still crazy about Kusile and Medupi being up and running within no time. However, today, Medupi and Kusile were still being talked about. Without reasons, could the Committee get the amount of approved expansions from the date of inception of the Kusile and Medupi projects to the present date? Are there approved continued expansions? If yes, to what cost? Are there any unapproved or stopped expansions? If yes, what are the current implications where something cannot be done because of a particular unapproved application? On deviations, when taking almost the same front, one would like to know the amount of deviations that were not approved but continued. Does Eskom have the cost factor of this? In terms of the amount of deviations that were unapproved and stopped, he was interested in the project implications. What has suffered because of the project implications? Generally, what is the total amount of deviations per financial year that Eskom would always come up with and the reasons behind it? He explained that he was interested in the reasons behind the total figure of deviations. Is it bordering on the manner in which Eskom planned? Is it bordering on people just waking up and going to work but not knowing exactly what to do? Lastly, on consequence management he had picked single question. He told the Committee to remember that when they were at Megawatt Park on their last oversight visit, he had asked the same question. How many cases have been dealt with until closure for the period between the Committee’s last oversight visit to the Megawatt Park to date? He recalled that when the Committee was at Megawatt Park a series of cases were being curbed and, today, the Committee was being told of a series of other cases.
Mr O Mathafa (ANC) commented that he agreed with Ms Peters’ comment on needing a full day to engage with Eskom. He commended the detailed content of the presentation as there was clearly transparency and adherence to the Committee’s request for clarity. This also supported the last input by Mr de Ruyter in saying that Eskom was on track to fully complying with the conditions attached to the Special Appropriations Bill. He explained that he had quite a few questions that he wanted to chew on but to try to stay in line with the issues that Mr Mlenzana had raised as he wanted to dig down into the surface of the issues a little bit. In terms of the issue of load shedding, one slide in the presentation spoke about the risks of not being able to have consistent supply from South32. What happens in the event that this particular entity eventually goes into business rescue? What measures are there in place to mitigate the ultimate eventuality should South32 go into business rescue? This also spoke to the issue of load shedding. It would be interesting to know if, indeed, South32 went into business rescue and local submission is sustained at that particular mind, is there a likelihood of being seized with a situation that the national power grid might be constrained and load shedding might rear its head again. His second question was generic and spoke to the last slide on the unbundling process and the progress made. What is the view of the Eskom Board or the CEO in terms of the progress made thus far? Is it moving in terms of the expectation or is there some strengthening that is required?
He welcomed the intervention insofar as strengthening the supply chain processes at Eskom – particularly the appointment of the divisional procurement leads. Insofar as the ABB South Africa recovery of some funds that were overpaid, has there been an investigation into whether there had been any collusion between Eskom employees and the company? There was a deviation in favour of ABB, even though ABB had been found wanting on one head. In one of the slides there was an assertion that there was collusion in a particular contract and one single person had been relieved of their duties at Eskom. How was this issue treated? Eskom was still in a contractual obligation in some other areas with ABB, but on the other had they were found wanting. Was there collusion? If yes, what happened? If anything was in process, how far is that particular process? Still on the issue of suspensions and the relieving of peoples’ duties, in the presentation Eskom said that there were certain issues that were in the public domain and stirring public opinion. There was a reporting of the suspension of the Chief Procurement Officer (CPO). How does this impact on the interventions that Eskom is making to strengthen supply chain in the absence of such a key position? He added that it was known that there would be a discussion at the Standing Committee on Public Accounts (SCOPA) to find out how the issue could be resolved. How does this suspension impact on the conditional approvals on the deviations and expansions as given by National Treasury?
When going through the reasons for the conditional approvals, it could be seen that most of them had timeframes and conditions such as ‘on the conclusion of the tender process’ or ‘subject to compliance with the strict procurement processes’. Definitely, here, someone of authority was needed to ensure that the particular issues are attended to. On this issue he thought that he had a different understanding from Mr Mlenzana regarding the contract negotiations. His understanding was that Eskom had taken a bottom-up approach and identified seven coal suppliers who were short-term to medium-term contracted to Eskom. From various media reports, there was a narrative that these particular contracts were as a result of the long-term contract suppliers being unable to meet the supply demand of Eskom and hence Eskom had entered into the particular contracts as a result. What informed the bottom-up approach? Would it not have been prudent to engage the long-term contracts? If the issue was prices, how do the short to medium-term prices compare to the long-term contract prices? For himself it followed that when a contract was of a longer term the price was normally favourable, and when it was a shorter term the price might be higher. However, when looking into the nitty gritty, it did not necessarily mean that the short term price was expensive. Coupled with this, further reporting in the media and other enquiries was that most of the emergency coal suppliers were companies or mines owned by people of African descent. He was thus interested to know the demographics of the particular contracts. How did it impact on the transformation agenda as pronounced by the President?
On the letter that Mr Mlenzana was suggesting, he deposited one point where Eskom took the Committee into its confidence to say what their transformation programme was, what the targets were, how far they were, and whether they were satisfied with their target. Public opinion was that contracts owned by Africans were under attack at Eskom. He thought that this platform gave Eskom the opportunity to clear the air for once and for all, and to be able to identify where the particular narratives were coming from. In terms of the issue of transforming Eskom, there was a roadmap that was presented to the Committee as crafted in 2019. He was interested in the progress insofar as the roadmap at high-level, to say that generally Eskom was 40%, 50%, or 60% etc. towards achieving it. He thought that it had a bearing on the debt level of Eskom, load shedding, and the turning around of revenue collection issues. One the issue of transformation at Eskom again, he sought clarity on the contract of Econ Oil and Energy. On slide 59 there was a dispute on overcharging by Econ Oil and Energy. However, again, there was the submission that there was a process of trying to set aside Bid Corp 4786. Is the overcharging and setting aside of bid corp 4786 related? Will the setting aside of the Bid Corp 4786 have a bearing on the overcharging or will it resolve it? Or are they separate issues? On the deviation of South32 again, where the contract value was R11.4 billion and the value of the deviation was estimated at R66.98 billion, there was a high premium insofar as the deviation was concerned. What value is Eskom deriving in having to pay this particular premium? Does the outcome justify the value that is being paid? He thanked Eskom for the sterling work that they had done in responding to the Committee’s questions.
Ms Peters said that she joined Mr Mlenzana with regard to the issues on deviations and other matters. What were the prerequisites of contracting with Howden Power, which made it difficult for Eskom to detect that this supplier did not have the requisite license, for the manufacture, supply, and delivery of the air heater spares? In essence, Howden Power was a middleman for the supply of the goods. How was Howden Power identified and further shortlisted when it did not have a license? Has Eskom investigated the National Treasury recommendation to investigate elements of fruitless and wasteful expenditure? Has Eskom conducted these assessments? If yes, what was the outcome? Has any Eskom employee been charged with misconduct? What disciplinary steps have been taken by Eskom where employees have been found to be guilty of such misconduct? Who is responsible for procurement and contract management at Kusile and Medupi power stations? She asked this because applications for expansion were consistently sought after the contract has expires, which is misconduct in and of itself. In terms of the list of local suppliers of goods and services, how many are South African women, youth, and people with disabilities? It is important to understand the performance with regards to Eskom’s transformation agenda. In the conclusion of Kusile and Medupi power plants, she had seen on the presentation that unit six of Medupi would be coming in around July 2021 and Kusile around 2022. However, the Committee knew that it was being given these dates over and over again. It did not seem as though Eskom, when giving the Committee these dates, really used proper project management techniques to be able to determine how to reach such particular date.
If there was a situation where Eskom did not get approved for deviations, extensions, and modifications, what then happened in this particular situation? Is the project then abandoned? It was very important for the Committee to know this. What would the impact of the municipalities be for the revenue of Eskom, especially the intensive energy users’ option to procure power from IPPs? The Committee needed to know whether there would be a massive dip in the revenue of Eskom because Eskom would not be getting that money. He had heard one of the presenters indicating that there was a State capture period in Eskom. Did this mean that, according to the presenter, the residues and elements of State Capture that was seen through the malfeasance and procurement related misconduct of Eskom is over? What informed the presenter that it was over? She said that she was happy to hear about the Wilge residential development project, that somebody was held responsible, and that the costs would be recouped from the relevant manager who was actually responsible for the project. How did it arrive at the point where Eskom could build those particular units, and then later on realise that they do not need the beautiful flats as was shown to the Committee? It was important that the Committee knew about the overpayments. How much had been recovered so far? What is being done to make it possible that the total amount be recovered from the overpayments? Who has been held responsible for the overpayments? She explained that it was important for the Committee to know how Eskom has been able to deal with the relevant officials who were responsible for the overpayments.
With regard to the debt, what had happened to the Energy Efficiency programme of Eskom? It did not look as if Eskom spoke about the R 49 million initiative debt, that was lost by the then Deputy President, Mr Kgalema Motlanthe, anymore. She knew that there was Eskom’s Energy Efficiency programme and an initiative where Eskom was putting up solar water geysers for the households that were experiencing the bulk impact, especially in the hospitality industry, as well as converting some stoves to gas stoves. What has happened in regard to this? Would Medupi and Kusile, and Eskom globally, be seen as South Africa’s biggest emitter? What is Eskom doing with regard to the clean carbon technology, as well as the carbon capture and storage workmap that was lodged where Eskom was an equally important stakeholder? As South Africa it was important to protect the country’s coal resources and know that South Africa was not going to abandon the use of coal in the next 10 to 20 years. It was important that clean carbon technologies be part of the vocabulary and programmes of Eskom so that the jobs in the mining sector could be protected. In terms of the small miners and previously disadvantaged individual miners, how many of them benefitted from the coal contracts of Eskom as this also spoke to the transformation agenda of Eskom? What is the localisation percentage for Eskom? It was important for Eskom to know that the Department of Trade and Industry had set a target of 65% localisation for some of the industries in South Africa. Is Eskom also insisting on localisations so that it is known that whatever new Eskom is involved in is also benefitting the industries of South Africa? This was especially necessary now with the impact of Covid-19.
Ms N Ntlangwini (EFF) also agreed with Ms Peters’ comment on needing a full day to engage with Eskom as the presentation and discussion was too rushed even if it were to be broken into two parts. She thought that the way that the Committee was going about the presentation seemed as if Members were just touching here and there, to the core problems that were really happening in Eskom. A full day was therefore really needed but she also did not want the Committee to overlap with the work that SCOPA was currently doing with Eskom. The Committee therefore really needed to find a way to approach it. She agreed with Mr Mathafa on the transformation agenda of Eskom. She asked that the Committee be enlightened with the transformation agenda of Eskom, the work that they had done, and the work that they were planning to do going forward, to transform Eskom in terms of all the competence. When Eskom came to the Committee, Members always heard that there was a legendary project or skills that cannot be accessed in the country, and that they always needed to get people in from Russia and other countries. She explained that Eskom had been sourcing skills from other countries, especially at the time of the Kusile and Medupi power stations. Something which was very concerning for her and which she still could not grasp was the Eskom Board. She felt that the Board did not want Eskom to succeed and wanted to sell off the entity to the highest bidder.
She explained that she was making this statement because if one wanted a business to succeed one would not have had so many deviations to procurement-related issues. It seemed to her that they followed a business model and did not know how to track procurement, overpayments, etc. When looking at the Howden Power contract, how did one just go and give so much money for the manufacture of air heater parts to a contractor that did not have the required license? What were Eskom’s prerequisite checks in ensuring that these companies are qualified to do the work within Eskom, instead of just giving a person the contract and later finding that the person does not have the required license when wanting to renew the contract? How are such companies shortlisted and how Eskom’s checks done? In terms of the contract failure and poor contract performance, why is the soft market testing and early market engagement not an express requirement for Eskom’s procurement policy? In most cases, National Treasury was referring them to conduct market testing, which meant that within the procurement this was not being done. She wanted to know why this was if National Treasury had been telling Eskom this throughout the years. She added that this was her second term in Appropriations and Eskom had always provided this as one of their reasons. Why did Eskom not include it in their procurement policy if they knew that it was what National Treasury was going to ask them for?
In terms of South32, how is Eskom mitigating the risk of load shedding should there be no coal supply from the Duvha Power Station for an extended period? In terms of slide 13, when is the contract of Actom coming to an end? The issue of procurement and contract management in Kusile and Medupi had already been asked. It had been a really long time and the Committee could not continually hear that it was because of State Capture. Other Departments were telling the Committee that it is because of Covid-19 but now Eskom came to the Committee and said that it was State Capture. She said that some of these things should have been sorted out by now and that extended work needed to be done. Deviations, irregular expenditures, and disciplinary of employees should have been done by now. The Committee needed to have a day’s work with Eskom because for Eskom to do a 92 page presentation and for the Members to receive five minutes to ask questions was not doing the process justice. Members thus really had to run through their questions and might have missed crucial things in the 92 pager. If Eskom had sent a 92 pager, by now Members should have had the presentation two weeks beforehand. She added that Members were sitting in various Committees and did not just sit around and wait for Eskom’s presentation. The Committee thus needed to look into how it was going to do work to make Eskom work. Seemingly, Eskom did not want to do work but the Committee would make it work.
The Acting Chairperson said that the long presentation was perhaps as a result of a series of questions that the Committee had sent to Eskom to respond directly to specific issues the Committee had raised in a letter written to them. The Committee did not know that it would result in a 90 page presentation, so he fully agreed with Members that the Committee needed almost two days to finish up on Eskom’s response from the written report to the Committee about specific issues that it had said it must respond to. Members had covered him on a number of issues. Eskom had a very long history with some of the issues that had been talked about in the meeting but the Committee could not just find them right at the end of the day. It was a very long process that had been talked about and at one stage, when the Committee was doing oversight, he remembered it being said that Eskom was actually facing oncoming traffic. He asked whether Eskom had a tariff increase in line or whether they were thinking about implementation or applying for a tariff increase. One would obviously think that a tariff increase would be unfair if taking into cognisance how the economy was performing – especially for the poor. A Member had talked about the Wilge project issue, especially about the non-utilisation of that infrastructure by Eskom. What is the way forward with regards to the village or Wilge project? It was a wasteful exercise that Eskom had done and it was not sufficient for Eskom to say that they had realised that it was something that seemed to be wasteful. When the Committee did oversight, it had talked about the disposal of the Eskom finance branch but it did not seem as if Eskom had finally decided to effect its own decision to disband it. What are the reasons for this?
The Committee had met with Eskom during their oversight but Eskom had not yet implemented the decision. Why is Eskom continuing to follow wrong procurement procedures as had been rightfully mentioned? National Treasury had sent back a number of requests as they realised that Eskom wanted to do wrong things in most instances, especially around the issue of procurement. Why is Eskom persisting to do wrong things? In terms of the performance of the contractors, some of the contractors had been underperforming or performing in a way that Eskom did not expect them to perform. However, Eskom had been failing to impose some penalties which were a loss. One was thus not surprised when Eskom came back and said that they were now operating a loss. Operating at a loss actually put a burden on Eskom themselves as well as on the economy. When talking about economic recovery, Eskom placed a very crucial part insofar as boosting the economy. Given these challenges that Eskom had presented before the Committee, Eskom was creating a condition that was going to be very difficult to let the economy find its footing moving forward if the situation was not going to be remedied as had been agreed – especially with regard to the turnaround strategy. He also posed a follow up on the roadmap that was outlined. How far did Eskom get with regard to the roadmap that the DPE had unfolded? Eskom still owed the Committee feedback in saying how far they had followed up because he thought that the roadmap was actually supposed to assist the process so that Eskom found its footing. What is being done in the short term?
Minister Gordhan said that he would address some of the questions raised. On the matter of the roadmap, as Mr Mathafa had pointed out, it was published in November 2019. There was an office within Eskom which was responsible for the implementation of the roadmap and regular reports were received in this regard. The Department was quite satisfied with the first objective, being the separation of transmission as part of the separation of the three units: generation, transmission, and distribution. The Department would be engaging in the detail further with their Eskom colleagues to see if some of it can be speeded up. However, these were complex processes where one had to separate financial statements, auditing systems, Information Technology processes, human resources etc. Once one got into the complexity of the situation, one would find that Eskom had made some good progress. He could give the Committee the assurance that if some of it could be shortened, then Eskom could certainly be expected to do so. On the question of the transformation agenda, he thought that Eskom should be given a bit more time to give the Committee some details. However, the Department tracked various aspects of transformation but unfortunately did not have that detail available now. As had been correctly pointed out, the length of the presentation was dependent on the questions that the Committee asked so Eskom could not be blamed for the 90 slides. The presentation just answered the questions raised and if the Committee wanted accountability, then the presentation was the accountability in terms of the transparency of the information that was actually available.
The next point that was raised was the question of State Capture. State Capture was a reality and it was unfolding before the Zondo Commission right now. There were thus many more pieces of information, including that from the inquiry undertaken by the Portfolio Committee on Public Enterprises during 2017 and a report that was accepted at the National Assembly. The damage was thus caused by State capture, whether it was Medupi, Kusile, procurement systems, the extension of money in one form or another, or the coal suppliers that were disrupted, which today people want to try and find different explanations for. However, the reality was that the Gupta family and their related entities wanted to and did benefit from Eskom, and some of the recovery processes was what the Executive and the Board were dealing with. One could not say that State Capture was over. Corruption was still a feature within the scheme itself and it would take time to uncover it. As the CEO would tell the Committee, there were 3 000 people involved in the procurement system within Eskom which was a lot of people to monitor. During recent times, some people have been showing off on Facebook and other forms of media about the assets that they have which are out of tune with their incomes. If the Department undertook lifestyle audits across the Board, he thought that there would be some interesting revelations – which had been done at a particular level. Wilge as a project was a very good example of mistakes made a long time ago which the current management and Board was trying to rectify.
The questions were thus valid but he thought that everything needed to be placed in context because context mattered in this particular case. Whilst Ms Ntlangwini said that Members could not hear about State Capture all of the time, he was afraid that this was the case as long as it was a reality and its impact has not been removed. This was not too different from what scientists described as long Covid-19. Some people had Covid-19 and they recovered very quickly whilst others felt the effects for a very long time. He added that nobody knew what kind of impact Covid-19 had over a two or three year period. Thus, this was the long Covid-19 of State capture. Habits and culture needed to change, performance management needed to take place, and Eskom needed to become a high performance organisation. However, in order to do so, the Department and Eskom were going to trample on toes and people were going to use race, gender, and all sorts of excuses to justify their lack of performance. On the question of emissions, the President had set up a Climate Change Commission and several ministers and outside individuals were a part of it. As a government they remained committed to achieving low emissions but also achieving the kind of commitments that they had made as part of the climate change talks, which took place again later this year in the United Kingdom.
He said that the CEO would explain some of the dilemmas that Eskom was dealing with in relation to some of the worst performing Plants. He disagreed with Ms Ntlangwini in saying that the Board did not want Eskom to succeed. This was not true as he thought that the Board was very committed to wanting Eskom to succeed. He certainly agreed that there might be other who did not want Eskom to succeed. Everyone had to ensure that they protected the utility as best as they could in order for Eskom to perform at the right performance level. On the tariff question that was raised, there were tentative tariff levels that had been set. However, there were still discussions that were to be had about what was affordable and not affordable and, from an Eskom point of view, how to meet the debt burden of R480 billion and what contributions could be made by tariff increases and other processes as well. On the disposal of the Eskom finance company, the pandemic had affected not only human beings but the price of assets as well. This process was one that the Department and Eskom were still committed to. However, he thought that Eskom did not just want to dispose of an asset because the Department said so without getting the right price for it. There were thus complex processes that were at play within Eskom itself. He excused himself for another important meeting.
The Acting Chairperson thanked the Minister for his contribution to the Committee meeting and excused him from the meeting. He took the opportunity to allow Mr de Ruyter and his team to respond to the questions from Members.
Mr de Ruyter thanked the Members for the diligence with which they had perused the presentation and the questions that they asked. In response to the question on an end to load shedding, as Eskom had communicated in January of the previous year, Eskom had a maintenance backlog that they needed to catch up on. Eskom had launched a Reliability, Maintenance, Recovery programme and, as had been communicated a year ago, during this programme there is an elevated risk of load shedding as major units are taken offline in order to carry out the required maintenance. These units would return to service by the end of April of the current year, and by then Eskom would see a step change reduction in the risk of load shedding. Eskom would then take out another round of units for further maintenance and by September of the current year one should see a marked reduction but not an elimination of the risk of load shedding entirely. It had to be pointed out that Eskom welcomed the procurement process followed by the Department of Mineral Resources and Energy (DMRE) to add additional capacity to the groove. There was a recent determination to procure an additional 11.8 gigawatts. Eskom believed that this was necessary and welcomed these steps to bridge the shortfall that currently existed and that would continue to arise as their ageing power stations reached the end of their operational life. With regard to the question around the coal contracts and which coal contract is the longest serving, all of the contracts with the exception of one were of a duration of less than two years – so they were true short term contracts. There was a 12 year contract that remained but this was with a company called Mzimkhulu.
On the process for expansions for Medupi and Kusile, there was a process followed where various approvals were obtained from the Board as indicated in the presentation. Eskom was still in alignment with the approval that they obtained from the Board in 2015 and were thus still on track insofar as that was concerned. When a deviation or expansion is not approved, Eskom did not continue as that would be contrary to the oversight role played by National Treasury – it was thus something that Eskom did not entertain and did not do. In terms of the anticipated deviations, it was very difficult to give the Committee an example of the requests that they put to National Treasury for approval – 75% of which typically were approved. When Eskom made these requests they were thus not met with an unreasonable response from National Treasury as they approved three quarters of the request. Where Eskom believed that there was a business case to be made, for example when a contractor had already established itself on site and there is a lightly efficiency gain or price advantage that Eskom can get in order to reduce the overall cost, then this was typically an example where Eskom would approach National Treasury to ask their permission in accordance with the procedure. If National Treasury agreed then Eskom would obviously proceed but if they did not, as had been done with the Camden ash dam project, then Eskom would have to ask the contractor to vacate the site and then go out and open tender. It was thus not a question of wanting to avoid approaching the open market for bids as Eskom was driven by the best interests of the business.
In terms of consequence management, Eskom had identified 3 686 employees for disciplinary inquiry. 1 126 disciplinary inquiries were completed. It was found that in 1 241 cases, disciplinary inquiries were not required. Six employees had in fact been declared, and there was 1 319 disciplinary inquiries outstanding based on referrals received from the SIU. If one reconciled the SIU reported cases with the number of Eskom disciplinary cases, this was not due to a misalignment between Eskom and the SIU. It was because the SIU reported cases based on individual incidents whereas Eskom reported cases based on individual employees. Thus, one employee may be the subject of a number of disciplinary inquiries, which was why when trying to reconcile the numbers they might not necessarily add up. As of 31 December 2020, Eskom’s Industrial Relations department had registered 154 disciplinary cases emanating from forensic investigations. Of these cases, 143 had been completed and 11 were in progress. The completed disciplinary cases had resulted in 64 employees resigning during disciplinary processes, with a further 26 being dismissed as a result of fraud and corruption. He hoped that Members gained comfort from the information that Eskom was in fact applying appropriate consequence management. In response to the question with regard to South32, the Duvha power station was designed as a mine mouth power station. It was thus designed to be fed by a conveyer belt leading directly from the mine. Consequently, what was seen was that there was an inadequate coal handling facility to accommodate the handling of coal trucked in by road to the Duvha power station. Eskom was unable to receive the full coal requirement needed to keep all of the units at Duvha running, of which there were five, by importing coal by road.
Eskom was dependent on the importation of coal by means of conveyer belt in order to keep the Duvha power station functioning. If Eskom were to allow the South32 business rescue process to unfold, Eskom would lose the coal feed to three units at Duvha power station, which would be equivalent to the loss of 2 000 megawatts of generation capacity. What was hopefully clear from this was that it was in the interests of maintaining electricity on the grid for Eskom to do their best to avoid South32 going into business rescue at the Duvha mine. As Mr Nagar had indicated, there was an ongoing process by South32 to sell its coal interests in South Africa to Seriti Resources which Eskom trusted. If this transaction is approved by National Treasury, after having already been approved by the Competition Tribunal, then the risk will in all probability be averted and the associated jobs that are at risk in a business rescue will also be reserved. Eskom’s progress on unbundling was satisfactory. Eskom was making very good progress with the legal separation, in particular the legal separation of the transmission business unit, which was the primary objective set for Eskom in the DPE roadmap. However, it had to be pointed out that this process was not entirely in the control of Eskom as they were dependent on other government entities and regulatory authorities for various approvals in order to make progress. While Eskom regularly engaged with these government departments and regulatory bodies, they could not give a cast-iron guarantee that they would receive all of the requisite approvals in time for them to meet the target in the roadmap. However, Eskom was working very hard to ensure that it happened.
The question raised around ABB was a challenging one for Eskom. ABB had been a longstanding supplier to Eskom and it was a manufacturer and supplier of a number of transformers, switchgear equipment, and substation-related equipment that Eskom required in order to keep their business running. Essentially from Eskom’s inception, ABB has been a supplier and they are therefore deeply integrated into Eskom’s ecosystem. By way of comparison he explained that if one bought an Apple computer one was essentially down to using Apple as their ecosystem until they decide to take the computer, throw it away, and move to a Windows compatible computer. However, one cannot migrate from one to the other without incurring very substantial costs. Eskom was aware that ABB had self-declared certain unlawful and illicit practices at the Kusile power station. Based on negotiations conducted by Eskom, ABB, and the SIU, Eskom was able to recover an amount of R1.577 billion which was paid to Eskom on 23 December 2020. In order to ensuring that Eskom is compliant in their future dealings with ABB, Eskom had written a letter to the Director-General of the National Treasury and requested his guidance on how to deal with ABB going forward. This was done having regard to the fact that if Eskom were to entirely eliminate ABB from the completion of the work that they were currently doing at Kusile, which was more than 90% complete, Eskom would incur significant delay in bringing online further units at Kusile. Eskom would also have to replace all of the equipment that had been installed, incur significant claims from other contractors for standing time, and significantly increase the risk of load shedding going forward.
These were dilemmas that Eskom was grappling with and they were relying on the guidance and advice of National Treasury to assist them in making the appropriate decision having regard to good governance. In terms of the suspension of the CPO, it would not create a gap in the procurement department. There was of course a team that reported to the CPO and Eskom had capable and competent people who were willing and able to deal with all of the approvals that they requested from National Treasury. He thus did not anticipate a negative impact in this regard. The question regarding the long term supply of coal was a very pertinent question. In 2013, Eskom took a decision to cease further capital injections into cost plus mines. This was intended to liberate capital that could then be diverted into Medupi and Kusile. This decision, however, had a consequence and impact on the ability of the long term suppliers of Eskom to supply at the required levels. The Member was correct in saying that coal delivered by conveyer in close proximity to the power station typically was cheaper and of a more consistent quality than coal delivered by road. As Eskom incurred transport costs to buy from other coal suppliers, it was clear that there would be an added cost element. Eskom was working on a proposal in order establish an inland coal terminal, which was intended to enable Eskom to buy more coal from so-called junior and emerging miners to ensure that they could control the quality of the coal that they buy and ensure that they can blend, modernise, and then despatch, hopefully using Transnet’s rail system as much as possible. This was in order to reduce costs and the impact of coal trucks driving on the roads and inflicting wear and tear on the roads.
These were some of the plans that Eskom had to diversify their coal supplier base and continue to enable the entry of new and predominantly black African-owned mining companies into Eskom’s supplier base, while at the same time ensuring that they got a consistent, quality supply of coal at affordable prices. This strategy was being rolled out and being worked on in collaboration with Transnet. In order to give Members an idea of black ownership in Eskom’s coal supply base, he said that he could quote some statistics that would be of interest. There were two types of suppliers: (1) where there are existing rights, the Mining Charter in its third iteration requires that for existing rights a minimum of 26% black ownership or shareholding will be recognised as compliant; and (2) for new rights, this ownership is raised to 30%. For existing mining rights, at this point in time 82.6% of Eskom’s coal supply was compliant with this requirement and this would go up if the transaction between South32 and Seriti is concluded because South32 was one of the mining companies that did not meet the 26% minimum. Similarly for new mining rights, Eskom was currently sitting at 79.4% of their supplier base being compliant. Further consolidation and productivity in the coal mining industry would again improve this number overtime, which would of course be driven by Eskom’s own procurement activities. With regard to the Econ Oil issue, there were two matters that were important to consider. The overcharging of R1.2 billion related to a five year period on a contract that ran from 2012 to 2017. The application to set aside the Bid Corp contract related to a 2019 contract. These were thus two separate but related matters. Eskom had in fact been advised and followed that legal advice to lay criminal charges in terms of the Prevention and Combating of Corrupt Activities Act based on determined irregularities in a relationship with a senior Eskom manager. Eskom had to follow the prescripts of the law in this regard and those charges have been laid.
Mr Dukashe said that Howden had been a supplier to Eskom for a couple of years. The OEM was Balcke-Dürr Rothemühle but they had a license agreement with Howden for the manufacture, supply, and delivery of air heater spares. Eskom then had a contract with Howden, and this contract was around 2009 and was the sole source. The contract thus rode on the license agreement between Howden and Balcke-Dürr Rothemühle. Balcke-Dürr Rothemühle was a German company and Howden was based locally and they were able to manufacture the spares locally. There was thus a license in place but the license was then terminated, which was the reason why Howden could not continue to supply the spares. However, Eskom was informed in February that Howden had acquired Balcke-Dürr Rothemühle and would be able to continue to supply the spares as Howden now had a license through the acquisition of Balcke-Dürr Rothemühle, although Eskom had not yet finalised the process.
Mr Bala said that he had missed the question on municipal debt but would start with the question on energy efficiency. On the Energy Efficiency programmes that Eskom was running, Eskom was still running the programmes. He was sure that Members would have seen on television from time to time when Eskom ran into challenges of supply constraints, as Eskom would go onto national television to request the members of the public to reduce their consumption. In terms of the programmes that Eskom was running, they were actually multi-faceted. Specifically in residential areas, Eskom was looking at resuming the water heater programme as there were a lot of installations that were required to be refurbished as well as new installations. Eskom was previously running this programme with the DMRE and were looking at resuscitating the programme. He asked Mr de Ruyter to remind him of the question on municipal debt.
Mr de Ruyter thought that the Member’s question related to the prospects of successfully collecting outstanding municipal debt.
Mr Bala said that, in terms of the prospects, Eskom was well aware of the state of the municipalities. In some of the municipalities the prospect of full recovery was actually non-existent. Eskom’s focus was now to say how they would support municipalities to be able to service their current debt and, going into the future, to create that capacity within municipalities so that a sustainable situation is created for them in order to be able to continue to be able to service their debt. Eskom was in conversation with National Treasury on how they could deal with the issue of historic debt but they knew that the prospects were quite remote.
The Acting Chairperson said that he was looking at his clock. The Committee was aware that it had asked a number of questions and that there was still much more that Eskom was supposed to have given the Committee as feedback on those questions and clarities that Members had asked. Due to time, the Committee was compelled to stop the discussion. The Committee needed and would have to find some time because it was currently not the end of the interaction with Eskom. If Eskom also wanted to supplement the responses to the questions that the Committee had specifically asked so far, Eskom was to please make additions. As to the new matters that had been found from the report that the Committee wanted Eskom to respond to in future, as it continuously interacted with Eskom the Committee would check when it could have an interaction with Eskom. The Committee thus regarded this as a work in progress and made it very clear that they expected to see drastic improvement on the areas that they were not satisfied with insofar as Eskom’s performance was concerned – especially with regard to being seen as machinery to boost economy of the country in terms of economic recovery. The Committee took note of all the developments that Eskom had briefed it about but were saying that there was still more that was needed to be done to actually deal with the areas of underperformance, wrong procurement procedures, and other specific areas that the Committee highlighted as needing Eskom’s drastic attention. This was so that the Committee could see where it was going as it could not keep appropriating money without yielding any good results. He thanked the Eskom team for having submitted the report responses and for their presentation. The Committee would keep in touch with Eskom as they needed Eskom to have a discussion with them again in future. He excused the Eskom team.
Consideration and Adoption of Draft Minutes
Draft Minutes dated 25 February 2021
The minutes were adopted.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.