Eskom progress & investigations: update with Deputy Minister

Meeting report

Chairperson's opening remarks

The Chairperson welcomed the Members, the Deputy Minister of Public Enterprises, officials of the Department of Public Enterprises (DPE), as well as the delegations from Eskom, the Special Investigating Unit (SIU), and the HAWKS to the meeting.

He introduced Mr Mpho Makwana, the new Eskom Board Chairperson, to the Standing Committee. He said the Committee had met with Eskom more than any other entity or department, and had conducted two oversight visits, 16 meetings in the current term, and three meetings on Eskom-related matters, which totalled about 21 engagements.

The Committee took the Eskom issues seriously and needed the entity to be functional, effective, and fulfil its core mandate. Financial viability, financial sustainability, and the necessary reforms, including not throwing financial solutions at non-financial problems, enacting consequence management actions, and meeting deadlines, was crucial to reforming the entity. The Committee was concerned about the state of health of Eskom, especially because of the rolling blackouts, which explained the extent of its problems in the most explicit manner.

He introduced the Members of the Committee and the Committee staff to the Eskom Board, as it was their first interaction.

Deputy Minister’s opening remarks

Mr Phumulo Masualle, Deputy Minister of Public Enterprises, introduced the delegation from the Department who were present in the meeting. He affirmed the importance attached by the Chairperson of the Committee, in that Eskom was important for the energy security of the country and was considered one of the critical areas that needed a speedy resolution, as it afflicted aspects of community life.

He said the President had announced a series of interventions, one of which was the appointment of the new Board of Eskom and handed over to Mr Makwana to introduce the other board members to the Committee.

Eskom chairperson's introductory remarks

Mr Makwana said they were looking forward to hearing the concerns of the Committee that needed resolution by the new Board. He introduced the members of the Board to the Committee. He said they had added a new Board committee called the Business Operations Performance Committee, which was chaired by Mr Mthetho Nyathi, based on their initial assessment of what would be required to achieve the turnaround.

He said that as the accounting authority of Eskom, they were aligned with SCOPA’s mandate of safeguarding the public purse and ensuring that Eskom was operating within the acceptable prescripts of all the required regulatory compliance. Since its appointment in the past two weeks, the Board has appraised itself of the status of Eskom’s management and its efforts to mitigate concerns raised regularly by SCOPA in their past engagements.

The Board was mindful that top of mind to SCOPA was irregular expenditure, deviations on contract extensions and repeated audit findings, and assured the Committee that the new chairperson of audit and risks had already rolled up her sleeves. An incoming induction session was scheduled ahead of the first full sitting of the Board, in line with the formal schedule of 31 October.

The Board had already held two meetings to get itself up to speed, establish board committees, and ensure that each member knew where their focus areas would be. The Board was also mindful of the need to have robust consequence management and to ensure that the entity found a way to reduce its strain on the fiscus, which was also part of the reasons for the formation of the business operations performance committee.

SIU introductory remarks

Adv Andy Mothibi, Head of the SIU, introduced the delegation from the SIU present in the meeting.

HAWKS introductory remarks

Lt Gen (Dr/Adv) Godfrey Lebeya, National Head of the HAWKS, introduced the delegation in the meeting.

Update by Eskom on SCOPA recommendations

Mr Andre de Ruyter, CEO, Eskom, said they had successfully implemented nine recommendations and had made a fair amount of progress in ensuring the implementation of the recommendations made by SCOPA. Some of the recommendations included implementing a document and records management system and the appointment of a chief procurement officer and two executive managers.

Eskom’s vetting programme was in progress, focusing on senior executives, supply chain management (commercial), national key points, security, assurance and forensic and primary energy areas. The State Security Agency (SSA) continued to support Eskom in prioritising and providing feedback on vetting investigations. The establishment of the Eskom vetting field work unit was in progress, as the SSA was under great pressure due to the high demand for vetting and its shortage of resources. The SIU was also engaged to assist with the financial profiling of individuals cited in investigations.

Mr Chris Baloyi, Head: Forensic Investigations, Eskom, reported on the internal investigations at Eskom, where he highlighted that the entity had an opening balance of 270 active cases on 1 July 2022. 38 new active cases had been added during this quarter, 69 of the active cases were completed, and 239 cases were in various stages of progress under investigation both internally and externally.

Eskom had completed the first phase of 383 mandatory lifestyle audits on executives, senior managers, and their partners, where applicable. 34 high-risk cases were handed over to the SIU for further investigation. 16 referrals were closed; one case was closed on the basis that the employee had been dismissed on unrelated charges, 11 resulted in referrals to Eskom for disciplinary action and the remaining six cases were still under investigation.

Regarding the 11 disciplinary referral cases made to Eskom, the status was as follows:

Seven executives were found guilty, and sanctions were imposed, ranging from 6 or 12 months' written warnings, to suspension for 14 days.
Two executives were found not guilty.
One executive resigned on 30 November 2018, before the disciplinary case was referred to Eskom.
One executive retired from Eskom on 31 March 2020, before the disciplinary case was referred to Eskom.

Mr de Ruyter said they had also made steps to freeze the pensions of individuals who resigned in the face of disciplinary proceedings to disincentivise them from not following the disciplinary process.

Ms Mel Govender, Group Executive: Legal and Compliance, Eskom, said in December 2020, ABB South Africa had repaid approximately R1.5 billion to Eskom, and it was working with the SIU to set aside the R2.2 billion control and instrumentation contract that had been irregularly awarded to ABB. The court papers in this regard were in the process of finalisation. Eskom would ensure a seamless transition between the setting aside of the contract and the execution of a new contract between Eskom and ABB, and would also institute supplier disciplinary proceedings against ABB in due course.

Regarding the application for equitable relief in which the SIU sought an order that Tegeta repays Eskom an amount of approximately R734 million, which had been paid to Tegeta for the supply of reject coal, she said Tegeta was under business rescue. Eskom had submitted a claim of approximately R359 million against the business rescue practitioners (BRPs) for post-business rescue penalties. The underlying Tegeta coal supply agreement was set aside in terms of a court order handed down on 4 March 2020, and the SIU had instituted proceedings against Tegeta and the BRPs for just and equitable relief to repay the sum of approximately R734 million to Eskom. The BRPs had opposed the relief sought, and Eskom filed a notice to abide in June 2021. The matter was being driven by the SIU and remained ongoing.

Eskom was also pursuing civil action for R3.8 billion against several former Eskom directors and executives to recover large sums of money lost by Eskom because of state capture and the involvement of the former executives in it. In August 2020, combined summons and particulars of claim were issued against 12 defendants, with the SIU cited as co-plaintiff. Of the 12 defendants, Eskom was pursuing claims against only seven former Eskom executives and directors, based on a breach of fiduciary duties and breach of contract.

Eskom had had the matter placed under judicial case management, and the first meeting was held on 13 September 2021 to deal with the defendants’ objections and delays. It was resolved that a day would be set aside to ventilate the issues to be dealt with in terms of the interlocutory applications, after which the remainder of the issues would be dealt with. There was difficulty securing a date with the judge, and efforts to do so were ongoing. An executor was yet to be appointed for the estate of the late Dr Ngubane.

Dr Thulane Ngele, General Manager: People Relations: Eskom said as at 30 September 2022, Eskom’s Industrial Relations Department had registered 389 employees who had undergone disciplinary processes. Of these, 361 had been completed, and 28 were in progress. The completed disciplinary cases resulted in 183 employees terminating their Eskom employment through resignation, abscondment (157), and retirement (26) during the disciplinary processes, with a further 41 being dismissed because of fraud and corruption.

Mr Baloyi said 14 specialist resources, with the associated budget, had been approved and the recruitment of candidates to fill all the specialist positions had been completed. The list of the positions was:
Five senior advisors
One assistant officer
Three senior advisors with knowledge of supply chain management and experience
One senior advisor with treasury skills
One quantity surveyor to assist with audits for major projects
One senior advisor dedicated to running commercial data analytics
One chief advisor: technical auditing who would also assist with major technical investigations
One chief advisor: auditing, with information technology (IT) security skills.

The Forensic and Anti-corruption section’s management team had a full complement, but there were three vacancies resulting from natural attrition, and recruitment for these positions was under way. The forensic team continued to deal with a high number of cases reported, including a significant backlog, but approval was received to appoint fixed-term contractors to deal with the high number of cases received through the backlog. The recruitment process for the positions had commenced, and three investigators started on 1 October 2022.

131 criminal cases had been opened with the South African Police Service (SAPS) for further investigation, and 13 of the 131 went through the criminal proceedings provided for under the Criminal Procedure Act. The above numbers included the following matters at Impulse, Tegeta/Brakfontein, McKinsey/Trillian and Dongfang, which were under investigation by the specialised units of the SAPS:

Mr de Ruyter said Eskom and the SIU were working together and had good working relationships, and he thanked Adv Mothibi for their good working relationship.

Ms Jainthree Sankar, Chief Procurement Officer, Eskom, spoke on the management of the extension of existing contracts that were due to expire. She said divisions had been provided with a contract expiry report, advising of all contracts which were about to expire in 0 to 12 months to commence with the process of establishing new contracts well in advance before the expiry of preceding contracts. In instances where expansion or scope variation was inevitable, the variation was approved by the relevant delegated authority to eliminate any elements of possible manipulation, and then reported to National Treasury in accordance with the newly enacted Public Finance Management Act (PFMA) Instruction Note No. 03 of 2021/22. In compliance with the Instruction Note, all such transactions were reported to National Treasury and the Auditor-General of South Africa (AGSA) in accordance with the prescribed reporting rhythm, with deviations and procurement by other means having to be reported within 14 days of approval, and expansions and variations having to be reported monthly.

In accordance with Ministerial equity conditions, procurement planning was entrenched across the divisions, as well as the monitoring of contract performance against the project budgets, to reduce contract variations and expansions. Lastly, establishing contract management offices across the divisions was under way, which would ensure the proper management of contracts.

Mr Jan Oberholzer, Chief Operating Officer (COO), Eskom, spoke on correcting defects identified at the Medupi and Kusile Power Stations. He said major plant defects at Medupi and Kusile were tracked under the Eskom Operations Recovery New Build (Nine-point Plan). Major plant defects were defined as plant system or equipment defects that resulted in, or had the potential to, significantly reduce the energy availability factor of multiple units at the new build power plants, and where the available contractual defect resolution remedies had not been effective.

The five major plant defects at Medupi and Kusile included:

Medupi and Kusile Pulse Jet Fabric Filter Plant (PJFF) poor performance due to inadequate pulsing system and flue gas flow entry.
Medupi and Kusile Gas Air Heater (GAH) mechanical performance, erosion, and operational performance in terms of ash carry over and outlet temperature stratification.
Medupi and Kusile furnace exit gas temperature resulting in excessive reheater spray water flow.
Medupi and Kusile milling plant defects.
Medupi and Kusile air and flue gas ducting erosion.

Eskom was making steady progress in developing and implementing effective technical solutions to the major plant defects at the Medupi and Kusile power stations. At Medupi, the energy availability factor (EAF), excluding the impact unit 4 which was currently offline for repairs, had improved from 64% to 85% since the effective correction of the major plant defects. The completion of the first phase of the effective correction of the major plant defects at Medupi and Kusile was forecast for 2023.

Additional plant defect corrections, undertaken by Eskom in-house with or without third party involvement, were forecast for completion after 2027, depending on the extent of technical solutions and unit outage availability, as per the Eskom outage plan. The costs of executing the major defects correction plan had been managed within the current Eskom Board-approved Medupi and Kusile project budgets.

Mr Snehal Nagar, Acting General Manager: Primary Energy, Eskom, spoke on coal quality management at the organisation. He said coal quality audits were conducted with various service providers between July and September, and all major non-conformances were addressed, and a corrective action plan was submitted within the 24-hour timeline. Additional technologies were being investigated to test coal when received at the power station by truck.

Mr Oberholzer said the first three phases of the weighbridges and offloading facilities at Kusile Power Stations had been completed. The third phase comprised civil works for permanent weighbridges, the inspection building, and the control room. The outstanding phases were the coal hopper civil construction (Phase 4) and west access road (Phase 5). The coal hopper contract was awarded on 11 February 2022, and construction was underway, with mass earthworks (excavations) for the hopper structure completed.

The next activity of construction piles resumed in August 2022, and to date,103 piles have been done. The completion of construction for the hopper structure was forecast to be the end of 2023, and the west access road (Phase 5) would be executed in the same time frame. The installation of the four additional weighbridges in the coal stockyard had been completed, and the weighbridges were operational. A total of six weighbridges were installed in the stockyard and all were operational. The installation of the additional feed conveyor in the coal stockyard was complete and in operation.  

Mr De Ruyter said the reason for locating Kusile where it was, was its proximity to New Largo, and Eskom had made good progress in concluding the coal supply agreement with Seriti, who were now the owners of that mine. 

Mr Nagar said negotiations were advancing between Eskom and Seriti for the New Largo Pit D, Pit H, Pit F, and the New Largo main mine for coal supply to Kusile. It was anticipated that the contracts would be entered into, in tranches, for the different blocks of coal set out above, which would eventually see at least half of Kusile’s coal requirements being supplied by conveyor. The parties concluded the first of a suite of coal supply agreements for a three-year supply from Pit D to Kusile Power Station. The parties were currently in negotiations for the second tranche, which was the long term ten-year coal supply agreement (CSA) from New Largo Pit D, and were targeting the conclusion of this tranche by December 2022.

Current engagements with Seriti, based on the revised production schedule from the New Largo plan, indicated that Mini-Pit D would be the first to be contracted during 2022, followed by the New Largo main mine, expected during the first quarter of 2024. Eskom had requested Seriti to develop a business case to build, operate and maintain the conveyor belt under the already existing New Largo coal environmental approvals, including a possible off-site offloading facility, to minimise the number of trucks coming into the station.

Mr de Ruyter said the Gypsum enquiry had closed on 30 October 2020 after an extension of the closure date was granted. The transaction was currently with Audit and Forensic for assurance after receiving an anonymous complaint or request. The assurance report would provide guidance on whether the process followed in the tendering process was compliant or not. If compliant, a mandate to negotiate would be sought from the delegated committee for the negotiations and conclusion of the contract with the successful bidder. Due to delays in the conclusion of the investigation by Audit and Forensic, the anticipated conclusion of the transaction had been delayed to October 2022. The successful bidder would have to construct a separation plant to extract gypsum from the system.

Mr Oberholzer said all six units in Medupi were in full commercial operation, connected to the national grid, and supplying energy. The current focus was on completing the remaining balance-of-plant scope and conclusion of all commercial claims to ensure a proper project close-out. The target for full project completion was November 2023. Following a catastrophic hydrogen explosion in Medupi U4 in 2021, the unit was out of operation and was anticipated to return to service in September 2024.

Four units were in full commercial operation at Kusile, connected to the national grid, and supplying energy. Construction and commissioning activities were in progress on the remaining two units, unit 5 and 6, respectively. The completion of Unit 5 and Unit 6 was targeted for December 2023 and May 2024, respectively. The target for full project completion was May 2026.

The current Eskom Board-approved business cases for Medupi and Kusile remained valid, and to date, no additional costs have been incurred in the completion of Medupi and Kusile. The costs of executing the major defects correction plan were managed within the current Eskom Board-approved Medupi and Kusile project budgets. The liable parties/contractors were held to account within the provisions of the relevant contracts and were fully responsible for the related major plant defect costs. The outcome of the current corruption investigations at Kusile, some commercial challenges and the past COVID-19 pandemic impacts, were risks that were negatively impacting the Kusile business case.

Ms Sankar referred to the SIU referrals. She said that in May 2022, Eskom had been requested to respond to an enquiry on progress on the 99 SIU supplier referrals for administrative action. Eskom had received the same list from National Treasury (NT) during August, stating that the suppliers had transacted with Eskom during the 2021/22 financial year. Upon analysis of the 99 referrals, only 55 matters were supplier related, with 44 employee transgressions linked to the suppliers on the list. Of the 55, only 42 suppliers were registered on the Eskom vendor master data.

Eskom had not received a complete and accurate list of SIU referrals. It had received four different lists containing SIU referrals, of which the “list of 99” was one. The list totalled 156 suppliers, of which 84 were common across all lists. SIU referrals were focused on undisclosed or unauthorised interests of Eskom employees, but lacked sufficient evidence to ensure administrative action against suppliers that was procedurally fair. Eskom and SIU were working together to ensure completeness of the referrals and to address the issues impacting Eskom’s ability to conclude the restriction process. This included a meeting held on 20 July 2022.

Update by SIU on ESKOM investigations

Adv Mothibi introduced the SIU presentation and its contents to the Committee and allowed Mr Leonard Lekgetho, the Chief National Investigations Officer, to present the status of the SIU cases on Eskom investigations.

Mr Lekgetho said the SIU had investigated cases relating to the procurement and transportation of coal, the procurement of diesel, and the appointment of and payments to McKinsey, Trillian and Regiments. It also investigated the maladministration in the affairs of Eskom and the non-performance by service providers concerning the Medupi, Kusile and Ingula Power Stations and the high voltage transmission projects at Medupi, Kusile and Ingula power stations, as well as conflicts of interest in terms of the failure by Eskom employees to declare their interests and employees doing business with Eskom. The SIU also investigated the contracting and procurement of cloud computing services, software licences and support services, as well as engineering and project management consulting services.

In one of the conflict of interest cases, the SIU had found that Mr Jerome Mthembu, the former Head of Legal at Eskom, had not made the required declarations of interest that he was required to make in terms of Eskom's declaration of interest policies. The SIU had made a referral to Eskom to consider disciplinary action against Mr Mthembu. Mr Mthembu had brought an application against the SIU and Eskom for an order that the court declare the findings of the SIU invalid and unlawful. The SIU had opposed the application and served and filed its opposing affidavits. The pleadings were closed, and the applicant had not set the matter down for hearing to date.

The SIU had also investigated the Stefanutti Stocks, Izazi Consortium joint venture (JV) contract at Kusile Power Station for site finishing (P28), and the value of the contract was R782 983 578. The SIU found a corrupt relationship between the JV and Eskom employees -- Mr Mangope France Hlakudi, a former projects director at Kusile, Ms Mildred Nonhlanhla Nyoka, a former Kusile senior manager: contracts management, and Mr Simon Makondo, a former officer, technical support.

The SIU found evidence of a flow of R105.5 million from Eskom to the JV and then to the Eskom employees or agents of the employees through a convoluted network of entities. Mr Hlakudi and Ms Nyoka had resigned prior to the SIU investigation. The SIU made a disciplinary referral against Mr Makondo, and he was dismissed. The SIU had filed its summons and particulars of claim against the Eskom employees to disgorge profits they had received from the JV, and the matter was ongoing. National Prosecuting Authority (NPA) referrals were also made against all individuals and entities concerned, and Eskom terminated the P28 contract.

Adv Mothibi referred to the observations made by the SIU on their investigations at Eskom. He said Eskom regulated the conflicts of interests of its employees through a series of policies and procedures that required Eskom officials above a certain level to annually declare all conflicts of interest, directorships, memberships, details of any related or inter-related persons or other associates that did business with Eskom, whether a conflict existed or not. Eskom also required its officials, without prior written approval of the manager concerned, to not become involved in private work for remuneration outside of Eskom, or accept a directorship in a company, obtain membership of a closed corporation or a partnership or a joint venture.

He said desktop analyses of available databases -- for example, the Companies and Intellectual Property Commission (CIPC) data, and Eskom’s vendor, employee, DOI and SAP payment databases -- did not always identify the links between officials and Eskom vendors. In some instances, Eskom officials approached complete strangers to set up sub-contractors and bank accounts through which to channel funds to officials. These links could be identified only from a review of bank accounts, email communications, cell phone records etc. What further complicated the identification of conflicts was that Eskom vendors often paid kickbacks to officials indirectly, such as by paying the official’s child’s school fees, or by paying the official’s service providers/suppliers directly.

On coal procurement and transportation, Eskom officials had facilitated contracts with coal providers despite the concerns about coal quality raised by technical experts. Several technical reports questioned the suitability of coal from the Brakfontein mine for the Majuba power station, and the ability of the mine to produce the required quantities. Despite these concerns, a contract was entered into with Tegeta at an inflated price.

Laboratory testing processes were interfered with by submitting coal not from the Brakfontein mine for testing. This had happened due to the deliberate actions of Eskom officials, who made sure that samples for testing were obtained in the absence of Eskom observers, and had facilitated the swapping of samples by transporting samples to the laboratory in a truck that was not fitted with the contractually required tracking device.

The mine had delivered non-compliant coal from areas not stipulated in the contract. This was achieved by manipulating pre-certification processes at the mine -- certifying coal that was non-compliant as compliant. Once the coal was delivered to the power station, no further quality checks were conducted before coal from different origins was mixed. It was imperative that coal would be tested upon arrival at power stations and prior to being mixed with coal from other mines. This had not happened.
The SIU recommended the following systemic recommendations to Eskom:
Thorough vetting of officials upon entering Eskom was not enough, Eskom should consider implementing contractual terms that:
Allow for access to the personal information of the employee, such as bank accounts of the employee (and his/her spouse and children), e-mails and cellular phone communications.
Allow for voice stress analyses and lie detector tests to be conducted routinely.
Continued monitoring of high risk officials was required, such as SCM practitioners, contract managers, financial staff etc.
Monitor the lifestyles and financial transactions of high risk officials and monitor declarations of interest.
Manage information obtained through DOIs by both officials and bidders – for example, if an official declared his interest in a business, ensure that such business did not appear on Eskom’s vendor database and if it did, remove it.
Build a database of high risk officials/contractors identified in forensic and audit reports/bid documents etc.
The SIU was inundated with receiving new allegations. Many of the allegations fell outside of the existing SIU Eskom proclamations. As a result of the seriousness of the allegations, motivation has been submitted to the Department of Justice (DoJ) to extend the scope of the SIU’s mandate both in terms of time and focus areas. The process was at an advanced stage, and the SIU was confident that the extension would be approved.
Update by HAWKS on Eskom investigations

Lt Gen Lebeya said the figures that would be referred to as being transferred to the SAPS on the presentation may not necessarily correspond with their presentation, because matters that were referred to the SAPS were registered into the criminal case administration system, and some of those matters would go to the detective services, and some would go to the Directorate for Priority Crime Investigation (DPCI) in line with the mandate. The total number of cases was 131, but the presentation would speak to 83 cases with which the DPCI was dealing, and they had not shared their notes with Eskom’s Head of Forensic Investigations yet.

Some of the issues highlighted during the SIU presentation were handled by the DPCI, but with the involvement of the Investigative Directorate (ID) in the National Prosecuting Authority (NPA), they identified some of the matters that were related to state capture, and declared that they would handle them. The DPCI had allowed 15 of its investigators investigating the matters to go and work with the ID to ensure no disruptions. The cases that would be presented were handled by all three operational environments of the DPCI, including serious organised crime and crimes against the state, serious commercial crime (fraud and tender-related processes), and serious corruption investigations.

Maj Gen Mukhosi (sp), Acting Divisional Commissioner, HAWKS, said the DPCI had a total 83 cases at Eskom, and they were spread around six of the nine provinces. A total of 55 cases were under investigation, with 18 of them turning into court cases, seven provisionally withdrawn, and three pending decisions from the prosecutors.

He then presented an overview of the crime categories, an overview of Eskom cases on the court roll, the cases under investigation, and the cases that were provisionally withdrawn, in full detail.

Discussion

The Chairperson said each Member of the Committee would ask their questions, get responses, and then ask their follow-up questions and get responses, and then other Members would do the same.

Ms D Van Minnen (DA) thanked the SIU for its work and noted its importance. She said the action plan of the State Capture task team had gone to the Department of Public Enterprises (DPE) in July, and asked when it would be finalised. How widespread was the coal quality testing done at Eskom and what was happening with the automatic real time combustion testing, because there was clearly an issue there?

It had been mentioned that loads of coal were deliberately swapped out and debased when the Committee went to Kusile and linked to that, a lot of the coal at Seriti was getting earmarked to be exported because of the delays that had happened, and a middling product would be delivered. How would that affect Kusile, considering the narrowing of the coal quality, which was also an issue at the power station over the years?

How long were the temporary offloading facilities at Kusile envisaged to last? Was there a problem with the financial health of the contractor, and why was it specifically noted in the presentation? Was the cost of repair to Unit 4 in Medupi included in the R18.95 billion? Were the fires in Unit 2 and Unit 5 of Kusile potentially caused by a design defect? What would be the effect before and after constructing the Flue Gas Desulphurisation (FGD) plant at Medupi?

She asked the SIU to provide more detail on the diesel procurement. She asked if they felt the lifestyle audits were making any difference regarding the organised crime happening with some senior employees at Eskom. She wanted to know why there was a vicious cycle of cases being provisionally withdrawn at the HAWKS. The theft of coal seemed to be linked with the transport network and the transport system. Was there anything that could be done about that?

The issue with Babcock was in the media, and judgment had been reserved. What was happening there, and how did it develop because if it was true that Eskom already had the welding certificate, it would be interesting to unpack that? The Koeberg life extension project had been estimated at R20 billion in 2010. What costs were estimated for 2022 with all the changes that had happened, the changes in the exchange rate, and what time period had been discussed?

Eskom's response

Ms Govender said the State Capture implementation plan was currently a live document, and the next version of the document was due to be submitted to the DPE on Thursday. The DPE intended to collate submissions from various state-owned entities (SOEs) and submit them to the Presidency by the end of October. Eskom was on track to finalise its submission and submit it on Thursday. They had done a lot of work following the recommendations made by Judge Zondo, primarily around the supplier review space, the industrial relations (IR) space, and governance in terms of internal policies and procedures.

They were also looking at streamlining and making the supplier review process more efficient and easier for Eskom to take action against delinquent suppliers. The same applied to the IR processes, where they had made significant developments regarding director delinquency. Through the DPE, they were working with other SOEs to act against the delinquent directors identified by Judge Zondo, and the groundwork on that had been done and was in the hands of the DPE to take forward.

Mr de Ruyter said they were trying to significantly improve their coal quality testing at the stations. The current system worked by testing coal at the mine and then having a certified stockpile at the mine loaded on trucks that were sealed to prevent tampering. There were also tracking devices fitted to the trucks, because there was significant tampering with the seals through jammers that were used to prevent the tracking unit from being used, and the coal trucks were taken while they were off the radar to sites where the good quality coal was swapped for the discard coal. It was challenging to do real time testing at the Power Station because trucks were offloading on a continuous basis and that had to be done speedily.

Eskom was conducting work on a containerised auger sampler, which would take a sample from the trucks and provide a representative indication on the ash content on the trucks in real time, which would also have an automatic traffic light system attached to it that would direct the trucks either to inspection or to delivery. That could improve their ability to control the quality of coal received by Eskom, but for Kusile, the answer would be to migrate as much of their coal supply away from road to rail and conveyor belt because the opportunities for tampering and diversion would be far less. This was also included as a target by DPE in Eskom’s Shareholder Compact.

On the specifications for New Largo, he said the coal would meet the ‘Eskom 240 spec’ and they were comfortable with the meddling product because this was a system used historically for Eskom-linked mines for decades. 

Mr Oberholzer said they saw a temporary solution as not later than the first quarter of 2024. The aim was to have everything done by the end of the current calendar year, but they had also allowed another quarter. They understood that should there be six units in commercial operation and online, if the current logistical process was to be followed, that would mean a truck every 54 seconds, which would be impossible. The Seriti contract, signed a few weeks ago, and the commitment received from Seriti for the additional offloading facility, would take between 15 and 18 months, so the additional 4 million tons per annum would be online by the first quarter of 2024. The plan for a permanent solution was for the end of the calendar year 2023, and Eskom would do everything in its power to ensure that the coal facility was ready by then.

On the financial health of the supplier, he said the contractor had approached them about two weeks ago because of cash flow problems, and based on that, Eskom had decided that they would go to the tender committee next week to have their "plan B" for an already identified and negotiated new contractor, because the entity would not be able to afford to miss its timeline targets of the first quarter of 2024. There was a similar challenge on the ash situation as well.

The Medupi Unit 4 cost was not part of capex, because the unit was placed on commercial operations and would be paid by insurance claims. This was similar to the gas air heater incident, which was on a contract aside and would have no impact. They could not say the Unit 5 gas air heater incident was similar to what happened at Unit 2, because they had not identified the root cause of the fire and the Unit 2 fire was identified as caused by fuel oil. They also did not think a design error caused the fire.

Eskom was close to finalising a contract with the original equipment manufacturer (OEM) to operate and maintain the flue-gas desulfurisation (FGD) plant and to get it operating the way that it was supposed to. They had interacted with General Electric, who installed the plant, to form teams to identify if there were any design challenges, and they were open to that. They wanted to ensure that if any modifications would be needed in the plant, they would be implemented now because it would not help to have the same challenges that were at Medupi in the new FGD plant in Kusile.

The estimated cost of the Koeberg life extension project was still R20 billion, but the value of time needed to be considered. Eskom would be ready, and the first unit to replace the steam generators would be the break on Unit 1 on 8 December. The steam generators would be replaced, and in August next year, Unit 2 would have three steam generators installed. It was posing a serious challenge to Eskom, because they did not have Medupi Unit 4 of nearly 720 megawatts, and there would also be 920 megawatts unavailable for nearly a year-and-a-half because of the two Koeberg units. They were looking at how they would deal with the production plan to ensure that they reduced the risk of load-shedding to a minimum, but they were confident that they would successfully achieve the life extension licence in the middle of 2024.

Mr de Ruyter said the Babcock matter was before the courts, but as a general principle, any bid that assumed that Eskom knew of certain capabilities introduced a new risk area into the tendering system. Eskom had a checklist that bidders had to comply with and demonstrate on every detail, even if they were bidding for a new tender, having worked with Eskom before.

SIU's response 

Adv Mothibi said lifestyle audits were making a difference, especially if they were consistently applied. The audits were able to provide risk indicators that would require further investigation, and in some instances, they found unexplained wealth relating to possessions or income, and how they were explained. They conducted expensive financial analyses looking at the flow of money and where it came from and were able to see when it came from suppliers and the rationale and reasoning for that. The lifestyle audits also helped them to identify involvement in certain contracts and link them to criminal activities.

Mr Pranesh Maharaj, Chief Programme Portfolio Officer, SIU, said the spend on diesel contributed to severe financial challenges over time, and services had been procured from suppliers that were not well-established, which pointed to a weakness in the due diligence that could have been executed at contract placement stages to determine whether the contractors would be in a position to supply the required quantities. There were also allegations of possible fronting, where the contractors’ prior experiences were not in the industry, and they were suddenly receiving multimillion rand contracts to supply.

There was also possible involvement of employees in establishing business with suppliers and the irregular and inappropriate inclusion of intermediaries in the transactions. Eskom employees would find a niche way to try and to get some of their preferred suppliers into the market, even as sub-contractors. The SIU also looked at the irregular procurement practices and the possible cover coating and had found incidences of payments exceeding purchase orders, and were looking at those extensions and variations. There was also a failure to maximise the buying power of Eskom relating to the various escalations.

On the scale of economics based on the projected values or quantities that were required, there might have been a possibility to negotiate rates at an early date, so the rates that were actually negotiated were based on a fixed term when they could have been negotiated based on the extensions that subsequently came through. The SIU was looking at these aspects in its investigation of the diesel procurement, and while they were not consistent in all four cases, they ran through all of them. These were the matters that had commenced so far, but were not all the matters that would be under investigation by the SIU.

HAWKS' response

Lt Gen Lebeya said the timeline on the provisionally withdrawn matters since they were reported was from 2018 to 2021. They were withdrawn because new information was found on the cases that also had to be investigated to expand on existing evidence. For example, when an individual under investigation would mention that they were working for another person or people, that lead must be followed. They followed orders from the prosecutor to do follow-up investigations, and when the investigations were done, they would usually have to serve summons.

They had not unpacked the nature of their investigations into the theft of coal because some of their investigations were unconventional in nature. They required extra assistance from the intelligence community to be able to link the theft with specific groups, rather than individuals, as there were instances of intimidation that were happening, leading to suspicions of syndicates being involved.

Follow-up discussion

Ms Van Minnen wanted to know how much the unit that would do the real time testing of coal would cost, and whether funding would be a challenge for the unit. She wanted to know what was happening in the market for coal, because the fact that people were stealing it meant that they were selling it somewhere and there was demand for it. What would be the updated price for 2022 in the Koeberg life extension programme, given the differences in time and the exchange rate? Given that the Western Cape was at a relative distance from the power grid, what would the impact of the loss of 920 megawatts be to the province?

Eskom's response

Mr de Ruyter said the technology that they were investigating was an auger, which looked like a big screw or drill that would go into the coal and extract a sample for analysis in real time, but they did not have a cost price for it yet because they were in the procurement process. The coal that was stolen would get exported, and one could get three times more on the export market for the equal amount of coal that Eskom bought for its operations because of the war in Ukraine. There was a lively arbitrage market going on, and there were trucks exporting coal to Mozambique and as far as the DRC.   

Mr Oberholzer said he did not have the exact figure of the current cost for the Koeberg life extension programme, but would have it on Friday and provide it to the Committee. He said the South African grid was integrated and power would be supplied to every province. The Western Cape would not be affected differently from other provinces by the loss of 920 megawatts.

Mr S Somyo (ANC) said the reports presented were mind-boggling, whether in terms of operational capabilities or the practical experiences that followed. The recent SCOPA visit to Eskom had exposed several areas that needed attention, and through what was discussed at the visit to the head office, what he wanted to know was Eskom’s current ability to confirm the availability of energy and what  energy availability measure or standard generating practice they needed to guarantee them providing electricity consistently. He also wanted to know how much this would cost them.

Listening to the SIU’s presentation, he felt that the internal environment of Eskom, especially with the levels of corruption exposed in the entity, took away the hope that it could be able to resolve its issues and provide adequate electricity to the country. The Committee’s last visit to Eskom noted several challenges with operational staff, as there was a shortage in the number of people who were working, and he wanted to know if the operational units had improved since the visit.

Had Eskom resolved its stockpile challenges since the Committee’s last visit? What other solutions to the stockpile issue were being implemented by Eskom, considering the R9.7 billion liability because of the challenge? The financial capability of the entity was also weakened by internal policy issues, and dealing with those issues could help the entity. Was it a fact that Eskom was not concerned about breakages in its power generation units because insurance would take care of the costs?

He said the FGD plant had been an issue in the past few oversights at Eskom, and it seemed like they were struggling with it. He asked if there was a way in which the entity could find a lasting solution to it, because it had given the impression that the issue would persist for a long time. He asked for an update on the money lost through ABB and others, and whether it had been recovered.

Eskom's response

Mr de Ruyter said the Eskom generation system was currently unreliable and unpredictable, which was part of the persistent load-shedding. The entity had 81 units that performed to different capacities at different times, which meant that there was certainty that there would be at least 25 000 megawatts available at any given time, but that did not mean that the same number of units would be available all the time. Some units were taken off for planned maintenance, and some had unplanned breakages and needed to be repaired, so there was always a certain percentage of the units at risk, and Eskom kept operating on them. There were about 5 000 megawatts of such units.

Eskom currently has about 15 000 megawatts of unplanned maintenance, and about 5 500 megawatts on planned maintenance. The planned maintenance number as a percentage of the overall installed capacity was very high, and higher than the days when a 90% energy availability factor (EAF) and 7% planned maintenance and 3% unplanned prevailed, and Eskom had to do far more planned maintenance to catch up. In the past, if maintenance was deferred, the extent to which planned maintenance needed to be done was so much greater than if they had kept to the scheduled outages as they were originally intended to be performed.

Over the past few years, Eskom management has consistently signalled a generation capacity shortfall of between four and six gigawatts. That message was generally accepted now because everyone understood that new generation capacity needed to be added to the grid. The Independent Power Producer (IPP) Office in the Department of Mineral Resources and Energy (DMRE) was procuring new electricity. Eskom was also procuring electricity from neighbouring countries and producers with capacity available on the grid.

Fundamentally, Eskom needed to improve the reliability of the coal fleet, and part of that was to fix the variables under its control, especially coal quality, which was where the work of the HAWKS and the SIU was important. The entity also needed time to catch up on maintenance and money, because the outages took a lot of money, and orders for long lead items needed to be placed significantly in advance. Until there was substantial new generation capacity entered into the grid, the risk of load shedding would remain.

With the President’s announcement of the establishment of the National Electricity Crisis Committee (NECC) and the lifting of the cap on own or embedded generation, there were at least 6 000 megawatts in the pipeline of projects being registered with the National Energy Regulator of South Africa (NERSA). This would take between 18 and 24 months to be online, and would play a significant role in abating the risk of load-shedding going forward. The right moves were being made, but they would take time to be implemented.

The impact of the issues raised by the SIU and HAWKS was very serious, because when entrenched criminal networks were operating in one's generation system, it created significant challenges regarding the quality of coal and the availability of spares. If spares were procured fraudulently and never delivered, one's system would indicate that the spare was in the store, but it actually was not because it was never delivered in the first place, even though it was paid for. He welcomed the increased attention from the SIU and the HAWKS in identifying the criminal networks that were still operating inside Eskom and had a negative impact on the entity’s ability to operate the entity as it should.

On the stability of staff, he said Eskom had quality staff and qualified people, but their challenge was to invest in training continuously. At some stage, Eskom stopped doing the required training for reasons unknown by the current management. The Eskom Academy of Learning, which was a world-class institution, had been left to find its own way and did not receive the necessary support, which resulted in many of the courses that were presented there being abandoned.

The entity was in the process of rejuvenating the Academy of Learning through its attempt to recruit a new faculty. It had appointed a new general manager who was very energetic and engaged and looking forward to restoring the Academy to ensure that the entity would have a pipeline of employees that it could feed into to ensure they have the necessary skills. Eskom employees were also highly sought after in the external market, and these were both operational and functional employees. International companies were also poaching some of the employees -- for example, some of the nuclear skills were attracted to work in the United Arab Emirates with very lucrative packages that Eskom would not be able to match.

On the stockpile management at Medupi, he said the monthly cost of operating the yellow Caterpillars was about R14 million a month, because the stockpile needed to be maintained and not subjected to spontaneous combustion. Eskom was consuming the requisite quantity of coal, so no more take or pay penalties were added, but if the entity fell below the take or pay limit, then the contractual mechanism would kick in again. The answer was that Eskom needed to operate Medupi, as it needed to operate, and barring Unit 4 which was currently out of commission because of the hydrogen explosion, the energy availability factor at Medupi would be 85%, which was very good.

The units at Kusile were a concern. By introducing the FGD plant, they had introduced a single point of failure through a technology that was not well-known to Eskom, where the entity did not have the requisite skill to operate the FGD units. Eskom had engaged with General Electric, who was the supplier of the units, to provide support and ensure that there were no design defects in the units and reduce the risks that were introduced by the FGD units to the operation at Kusile, which was the reason Kusile was not performing at similar EAF levels as Medupi. The introduction of FGD at Medupi could potentially introduce a similar single point of failure, and the engineering of the risks needed to be thought through carefully. The lasting solution related to getting the requisite skill for running the units, as they needed to be run.

On 22 December 2020, ABB paid Eskom an amount of R1.577 billion. ABB had self-reported, which made it different from some of the other matters where the alleged perpetrators denied any liability, so the burden of proof that needed to be discharged was significantly greater because it was an adversarial process. Eskom was pursuing actions against Stefanutti Stocks, Tenova, and others who were involved in the alleged overpayments with a view to recovering them, and were cooperating closely with the SIU.

Mr Somyo asked for an update regarding the unpredictability of outgoing staff at Eskom since the Committee’s last visit.

Mr de Ruyter said there was greater stability. There had been a period of turbulence over the appointment of power station general managers, and that was largely settled, but the current crop of power station general managers had a relatively short dwell time in those positions and the average was about 18 to 24 months, which was quite short for such a senior position. Time was needed for teams to have a chance to settle down and embed good practices. Eskom had launched several initiatives to support them by introducing additional skills to ensure proper knowledge transfer and engagement in skills training programmes to equip them with the necessary skills. They had also launched an operations excellence programme to drive certain basic operational disciplines to ensure that they had greater stability and managerial discipline at the power stations. 

Mr A Lees (DA) said it could not be denied that progress was made regarding corruption and fraud and fixing issues at Eskom, and anyone who denied that was probably not seeing the full picture. However, at the end of the day, the pertinent question was about keeping the lights on, and the reality was that the lights were not being kept on for various reasons mentioned in the meeting. Were the Kusile Power Plant units shut down because the gas emissions exceeded certain levels, and had those levels become drastic in recent months? In other words, was part of the load-shedding caused by simply cutting back on electricity generation at Kusile because the gas emissions were above certain acceptable levels? If that was the case, why was it allowed to hurt the economy of the country?

He was thrilled to see that at least the Reserve Bank had been able to rein in Marcus Jooste, even if the HAWKS still had not charged him with anything after all the years. He asked who the contractor at Ingula was, and suspected that it was a good friend of former President Jacob Zuma. He said some of the coal exported to Maputo and the Democratic Republic of Congo (DRC) and other places might be Eskom coal, but the majority of it could not get down the Richards Bay line because it was not properly maintained and secured. If it did get to Richards Bay, the terminals were operating below par -- the demand was there and people were desperate to receive the foreign exchange. The real issue was that Transnet and the Ports authority were a complete mess, and were costing the country.

On Babcock, he said that if it was just a document that was outstanding for a company that had done business with Eskom before, the document could surely be located, especially because the other two contractors were negotiated with.

Eskom's response

Mr de Ruyter said Eskom was not throttling back Kusile because of emission restrictions. Kusile was not delivering the megawatts it needed to because the FGD units were not performing as they needed to. Eskom could not bypass the FGD, and even if it wanted to throw caution to the wind and violate environmental restrictions, it could not do so because it could not divert the Flu Gas Desulphurisation unit. He could not comment on illegal and legal coal being mixed, as they focused only on what happened within their premises at Eskom.

HAWKS' response

Lt Gen Lebeya said they had taken note of the actions of the Reserve Bank, and the prosecutors and investigators were also working to a certain extent with the affidavit that had been used in the civil case.   

Mr B Hadebe (ANC) said the FGD system was the first of its kind in the country and was used to reduce or remove sulphur dioxide from burning coal. He was uncomfortable that it would cost R35 to R40 billion to install it in Medupi, because it clearly could have cost the same to install it in Kusile.

When the Committee went on oversight, it had been told that Eskom relied on the original equipment manufacturer (OEM) to fix any breakages or breakdowns relating to that system, yet in their response to the issue of skills transfer, they had said that most OEMs' contracts had skills transfer obligations. Some of the units at Kusile had been commissioned since 2017 and 2021, and to date, there were still no skills, and when a system broke, the entire unit shut down and they had to rely on the OEMs from overseas to fix the systems.

He was also uncomfortable that in their response, they had also said there was a contract in place for operating and maintaining the system, while they spent close to R40 billion to install the system. He asked how much the maintenance contract cost Eskom. It was unacceptable for them to give the same contractor a contract for installing and maintaining the same system. He asked the Board to look into the matter, because the system was installed about seven years ago and the current challenges of load-shedding in Kusile were caused by the same FGD system that was consistently breaking down.

Eskom was in the process of rolling out the FGD to Medupi, but because of lack of skills, the same challenges that were happening at Kusile would also happen at Medupi, and that should not be allowed because they would have wasted R80 billion. He asked how many officials had been trained by Eskom to maintain the system since the Committee’s last visit.

When the Committee told Eskom that it needed to manage the extension and expansion of contracts, what it meant was that Eskom needed to reduce its reliance on deviations and the expansion of contracts because in terms of the Constitution and the PFMA, when contracts were extended, competitive, equitable and fair procurement systems could not be achieved. The response from Eskom did not indicate that the entity had managed to reduce its reliance on deviations to extend contracts. Since 2019, how many contracts were currently active through deviation and expansion? Had they reduced the number to date, and how many contracts were currently active? 

On the correction of defects identified at Medpi and Kusile, the response was that Eskom was making steady progress in developing and implementing "effective technical solutions," and the completion of the correction of defects would take up to 2027 depending on the extent of the technical solutions. It was surprising that Eskom termed it "effective technical solutions," yet when they had to provide assurance on when exactly the defects would be corrected, they said it would "depend" on the technical solutions. What exactly were the effective technical solutions referred to by Eskom? Medupi and Kusile were implemented to address the issue of energy capacity in the country, and it should not take until 2027 to fix the defects because that would be unacceptable.

Where was the Kusile mine located? The determination of the location of Medupi and Kusile was based on the fact that there was coal and a mine around the area so that Eskom would not have to rely on trucks for transporting coal. When the Committee went on oversight, there was no mine in Kusile, hence there were 700 trucks transporting coal per day and the issue of mixing coal. A conveyor belt was supposed to be built from the mine to Kusile.

He was glad that the Board had been invited to the meeting, and said that the Committee’s understanding was that they were appointed because of their skills, qualifications, competence, and ability to do the work. They had seen the extent of the damage and rot caused by the Eskom officials and the corruption that plagued the entity. He asked for an assurance that they accepted the responsibility, knowing fully what they were getting themselves into, and that they would not turn around and lead Eskom with a mirror in front of them and tell the Committee only about what had happened in the past. The Committee needed solutions for the future. According to the PFMA, it was the Board’s responsibility to ensure there was no continued fruitless and wasteful expenditure at Eskom, and those responsible for the fruitless and wasteful expenditure would be held accountable, regardless of their position.

The Chairperson said context was important on the issue of the mine, because when the Committee visited Kusile in 2019, the commitment that was given was that issues concerning the mine would be sorted by January 2020, but when the Committee returned in March, there was no mine. The reason the issue of the mine was brought up in every interaction was to push back on the prevalence of the 700 coal trucks going to Kusile daily and the damage caused by the trucks, as well as coal quality. He asked for clarity on the matter, because Eskom had failed to meet their own deadlines regarding the mine.  

Eskom's response

Mr de Ruyter said the FGD at Medupi had not been awarded to any contractor yet, and they would go out on a tender process. To address some of the issues that confronted them with the operation and maintenance of the FGD at Kusile, they were scoping the provision of the services for Medupi in the contract so that they could understand how the risk would be managed and mitigated upfront.

Mr Rhulani Mathebula, Acting Executive: Eskom Generation, said that when the FGD was built by General Electric, they had multiple international service providers that they had contracted with to supply them with different sections and components of the system. The contractual agreements allowed the service providers to service Eskom only via General Electric, which was why Eskom saw it prudent to re-contract General Electric to help them manage the Kusile plant while they got their teams up to speed. Eskom had its own subsidiary, Rotech Industries, which looked after the plant, but with the challenges that were prevalent, Eskom had discovered that the skill levels of the subsidiary were unable to manage the challenges sustainably, and they needed support from the OEM.

Ms Sankar said Eskom put a lot of effort into understanding why they had expansions and deviations. Some of the challenges they found included the inefficiency and bureaucracy of the procurement process. Eskom had made some changes in that regard, especially through a reduction in the number of committees in governance, the shortening of deadlines for completing certain tasks and assessments, and cutting out non-critical activities. They had also put enabling policies and procedures in the front end so that procurement planning could be done even before funding was secured. She said they had shortened the time it took for something to go into the market, because that was one of the main reasons for the overlap of needing contracts, because procurement processes took months or years to complete.

They had reduced the cycle times and the bureaucracy that caused deviations and expansions to occur, and in terms of policy procedure C, section 217 of the Constitution, deviations were no longer the order of the day at Eskom. They made sure that they correctly motivated what they needed to do. Their new instruction note also noted that there would be reporting on all types of procurement to National Treasury within 14 days. Such conversations were also had with Central Procurement Office (CPO) and the Monitoring Office to understand why the deviations took place so they could be countered during the contracting process.

They were also enhancing the processes for procurement planning and monitoring tender contracts that were about to be cancelled, and matched up tender cancellations and advertised the items that were on the procurement plans that did not take place on time, to see if they contributed. Part of the reporting that they did to National Treasury was to see if any of the tenders that were cancelled were impacting the deviations and expansions, and that checks and balances were there to see if they were not using delays or inefficiencies to deal with deviations and expansions. She said the number of deviations and expansions was not increasing, and the details could be provided to the Committee, as they were not included in the presentation.

Mr de Ruyter said the details would be provided in future reports to the Committee, and the details for the past quarter would be sent to the Committee Secretariat.

Mr Oberholzer said the commercial operation date for Unit 6 was going to be in the middle of 2024. By then, the five major modifications would have been completed by the end of 2023 on all the units. What would be concluded in 2027 would be the additional modifications that Eskom would want to implement, such as the flow through the fabric filter plant and the flow through the gas air heaters, and those would be done and implemented as outages became available on the 12 units. It was necessary to have a unit that was offline to be able to implement the modifications, and Eskom was not procrastinating or delaying the progress. He said they wanted to achieve the same 85% EAF at Kusile.   

Mr de Ruyter said the mine existed in Kusile, and an aerial picture of it was shared in the presentation. He suggested that perhaps the Committee could organise a visit to inspect the mine. The conveyor belt was also in the building process.

Mr Makwana said the principle that he had followed since the Board was appointed was to guard against "chest-pounding tendencies," and preferred that the Board would be judged on the results that it would produce. The Board had already held three working sessions, which should show that they were not a passive Board and took their responsibilities seriously. The Board committees would meet within the next week ahead of the scheduled end of October Board meeting. On 1 November, they would have a comprehensive review of the strategy with the Executive, which would be an ongoing task.

He said the Board had committed among itself that it would be an engaged board, which meant that without overstepping its role or stepping on the toes of the executive team, they intended to be engaged in supporting the executive team in resolving the existing challenges. What was painfully clear to the Board was that the challenges in the entity were not purely financial or systemic in terms of the impact of the previous climate of state capture and its damage to internal controls, but Eskom was a complex system that needed to be dealt with holistically. The nub of it was that if it were to be turned around to yield positive results in terms of the EAF, the Board felt it was necessary to have a committee that would go into the belly of the organisation, which was the reason for the creation of the Business Operations Technical Committee.

As they would be reporting back to Parliament on a quarterly basis, the next quarterly report would show if they meant what they said when they said they were an active Board or not, and whether their skill sets were appropriate or not would be determined by the results they would produce.

Follow-up discussion

Mr Hadebe asked for the name of the company responsible for the FGD in Kusile.

Mr de Ruyter said ERI Rotek was the engineering subsidiary of Eskom that assisted them with the operation of the FGD.

Mr Mathebula agreed that Rotek Industries was the current operator and maintainer of the FGD, and management was arranging for them to receive support from the OEM, which was not a new thing in Eskom, as they had the same arrangements for their turbines and other plants where OEMs were contracted to provide technical support.

Mr Hadebe said there was a possibility that in the new tender, the same OEM that had cost close to R40 billion could be contracted to maintain the same system that was failing.

Mr de Ruyter said it was not feasible or appropriate to blame the OEM for all the challenges that the FGD had, as Eskom’s own lack of operational knowledge had played a significant role in the under-performance of the unit. The technology was new to South Africa, but was not unknown internationally, and the approach of bringing in the requisite skills should address the issue. To disqualify the supplier based on the performance at Kusile would be prejudicial and could expose Eskom to several challenges, so when Eskom commences the tender process for the Medupi FGD, they would try to cast their net wide and consider offers and bids from any qualified supplier of FGD equipment, based on a competitive and transparent bidding process.

Ms V Mente (EFF) said Mr Somyo had asked a question about the sustainability and provision of energy to the citizens of the country and whether Eskom could confidently say energy was available and how much it would cost, and what would need to be done if energy was not available. She was revisiting those questions because of the many narratives that were being driven in the media. She needed assurance from Eskom on the matter because their main mandate was to provide energy that was affordable to the citizens of the country.

Currently, people who earned a basic salary of between R3 500 and R10 000 could barely afford electricity, yet the electricity rates in the country were skyrocketing, which meant Eskom was no longer serving its mandate because it was exclusionary to those who earned a basic salary. Seeking independent power producers to assist Eskom in providing energy to South Africans meant that the price of electricity would be much higher, and would not serve the people of South Africa in any way.  

She asked for an explanation for the 131 cases that had been referred to the SAPS while there were 389 total cases, and said although it was mentioned that some people had left Eskom, it did not mean they did not commit a crime. That excuse was not acceptable as long as those people were alive, because they needed to answer for their crimes. The meeting was being held because Eskom could barely survive on its own, and there was no appetite for developing Eskom into a business that could sustain itself without relying on external service providers. Was there a way of in-sourcing Eskom business and getting the entity into a space where it could perform well without relying on external service providers?

She asked why ABB was still operational if Econ Oil was blacklisted, because both companies had committed the same legislation breaches in terms of Eskom’s contractual regulations. Eskom had also said they would institute disciplinary action against ABB in due course. What informed their quick decision on Econ Oil, and why did they take many years to deal with ABB? The SIU also reported that Eskom had an agreement with ABB for repayments, and was currently negotiating with them to finish off the work they had started at Eskom. Why was Eskom begging ABB to finish the work it was supposed to have finished a long time ago instead of getting them to pay the remaining amount due to Eskom and using it to pay a service provider to complete the job? Why was ABB not blacklisted like Econ Oil?

She had noticed two imbalances in the ABB and Econ Oil saga. Econ Oil was a majority black-owned company, and ABB was a majority white-owned and international company. Both companies had committed a similar breach at Eskom, and yet Eskom made a decisive decision only against Econ Oil and had been very indecisive against ABB. The worst part was that the reason that was provided for Econ Oil’s blacklisting towards the end of the year last year was that there was a judgment which vindicated Eskom on the issue of Econ Oil. She said the judgment had been based on a non-existing document, and that had been revealed by the same judge who had made the judgment. Where did that put Eskom? Who had footed the bill for the court processes? Who was going to bear the costs if Econ Oil went to court and disputed their unfair removal and blacklisting?

She said the Medupi Unit 4 explosion was described as the most recent case when the Committee was on oversight, and a question was asked on whether there was a monitoring mechanism available, because for the unit to reach a stage of explosion, there would have been indicators to warn the staff. There were no clear answers on the mechanisms in place, except for a response that referred to filter bags that had to be removed. She still wanted to know if there was a monitoring mechanism for explosions at Medupi, and who the senior employee was responsible for the monitoring.

There had been mention of a plea from the Minister to the Minister of Environmental Affairs to not require the implementation of the FGD, and that an alternative solution would need to be found. She felt that the FGD had been imposed on Eskom, and suggested that a solution that would be less costly needed to be found because Eskom did not have the technical expertise to operate the FGD. She did not understand why the FGD was necessary for South Africa, because it was not fulfilling its duties and did not aid in improving the economy of the country.

She said there were still outstanding vetting processes to be followed, especially for the executives. She wanted to know why that was the case, and if the Committee needed to intervene, especially on the SSA, they would do so. She asked when the establishment of the contract management offices across all Eskom divisions would be completed. Was it true that Eskom had a 66% bloated staff, and if so, why did it take more than a day to service people in rural areas when they were called for technical faults?

Eskom's response

Mr de Ruyter said Eskom could not procure new electricity nor build new power stations without the government’s approval. Eskom had recently submitted two projects to the Department of Mineral Resources and Energy (DMRE) for section 34 concurrence. They were both denied permission to proceed despite the fact that they were shovel-ready and good to go. As much as they would have liked to be actively involved in the provision of new generation capacity, they were precluded from doing so. They also had challenges with short term power procurement from entities that had excess electricity available that they could feed into the grid, and were prevented from accessing that electricity through various regulatory provisions, but hopefully, through the NECC, they would be able to do that. 

The cost of electricity in South Africa was a complex and sensitive issue, and indigent customers could apply for free basic electricity through their municipalities, which gave them the opportunity to access electricity without having to pay for it. Eskom had noticed that the take-up of the free basic electricity benefit was much lower than they would have anticipated, and there was a need for municipalities to communicate to their residents that the option was available.

Part of the reason for Eskom’s current financial woes was that they had had adverse tariff decisions for several years in the past, leading to a cumulative revenue shortfall totalling some R380 billion. That coincided closely with the debt burden faced by the entity in recent times, because Eskom had to borrow money to pay for its operating expenses, which was not a sustainable practice. Between affordable tariffs that did not hamper economic impact and were also cost reflective, a balance that made sense for South Africa needed to be found. That was the job of the National Energy Regulator of South Africa (NERSA). 

Mr Baloyi said when they spoke of consequence management, they referred to four actions -- disciplinary action, criminal action, civil action, and the review of internal controls. The criteria for counting criminal actions was that one investigation would have one criminal case as opposed to the criteria for counting disciplinary action. There would never be a correlation between the number of criminal cases and the number of disciplinary actions handled by an organisation. In this case, there were 389 recommendations for disciplinary action, which referred to the count of employees compared to the 131 criminal cases, meaning in one criminal case, there could be ten people accused, which explained why there was no correlation in that regard.

There were also instances where a criminal case would be reported during the course of a forensic investigation, because the assistance of the SAPS would be required, given the constraints that internal investigators would have had.

Mr de Ruyter said there might have been a conflation between the issue of de-registering and blacklisting, as de-registering referred to when, for example, Eskom would stop doing business with a company that they believed might have acted in a manner that violated the conduct standards that they expected from their suppliers. They would then de-register the supplier from their database, and the supplier would be given ample opportunities to make submissions to be heard at the Supplier Review Committee. Econ Oil had made use of that opportunity. Once a decision to deregister a supplier was taken, Eskom would be required to inform National Treasury that the step had been taken, and National Treasury would conduct its own investigation. The decision as to whether or not it wished to extend the restriction on the supplier across all SOEs was up to it [[[Treasury].

The judge in the Econ Oil matter had acknowledged that there was a possibility that he erred in relying on a confirmatory affidavit. The point had been raised in petitions made to the High Court and the Supreme Court of Appeals, and both the courts did not regard the issue raised on the reliance on the confirmatory affidavit as material, and did not grant leave to appeal. It was not within Eskom’s ambit to second guess the High Court or the Supreme Court of Appeals, and it was up to the two institutions to make their verdicts and findings based on the law as both judges saw fit.

ABB was a slightly different matter, because the company had self-reported. When ABB became aware that there was unethical conduct, they self-reported and paid the amount of damages Eskom had suffered. Eskom had pointed out to National Treasury through a submission that the work that ABB did on control and instrumentation at Kusile was 90% complete, and if they were to eject ABB from the Kusile project, they would have delayed the completion of the Kusile project by four to five years, because they would need to have a different contractor to replace all of the equipment. This would also have resulted in additional load-shedding that would have an impact to the economy of about R162 billion, as well as a R1 billion claim against Eskom from various contractors who would have been delayed in the execution of their work.

Eskom had approached the court to have the contract with ABB set aside as fundamentally unlawful because it was based on corruption, that a new contract would need to be put in place, and ABB would not make any profit from the work, as it would be done on a cost basis. Given the constraints with the completion of the contract, the advanced stage of the work performed by ABB, as well as the risks posed both to Eskom and the economy at large; this was the best outcome that Eskom could have hoped for, bearing in mind that ABB had paid Eskom the R1.577 billion to compensate for overpayments due to corruption. 

Mr Mathebula said the incident at Medupi Unit 4 was based purely on human error, which had been picked up during an investigation. The activity carried out on the day was one of the critical activities carried out at the power plants, and required competent and trained personnel to perform. The process required skills and competence, because the generators were cooled with hydrogen, and whenever work had to be done in the chamber, it had to be purged with carbon dioxide, and with air at a later stage, before people could be allowed to work inside the chamber.

When the generator had to be put back in service, the process would have to be reversed, meaning the chamber would have to be purged with carbon dioxide and then with air at a later stage to avoid hydrogen contamination with air. The error that happened was the mixture of the two elements during the purging process, which resulted in the explosion. The employees involved and their managers were put through disciplinary processes. Two middle managers, the operating manager and chief manager, were dismissed and appealed their dismissals at the Commission for Conciliation, Mediation and Arbitration (CCMA).

There were currently 12 generators that were off, with work being carried out at different generators and all having followed the same process of purging. This was a routine activity at the units, and the Medupi incident had been an error.

Mr de Ruyter admitted that with the implementation of the FGD at Medupi, other options could be investigated because R30 to R40 billion was a lot of money, and based on their own analysis, Eskom could see no measurable improvement in ambient air quality. There would be an improvement in the emissions at the stack, but not in ambient air levels. The reason for that was that the air in the Lephalale area was relatively unpolluted, and the air could accommodate significantly more stack emissions where it was required to be abated.

However, Eskom was required to comply with the law and did not have an option but to invest as part of minimum emission standards promulgated by the Department of Forestry, Fisheries, and the Environment (DFFE). It was also enshrined in the financing Eskom had obtained from the World Bank (WB)for Medupi, and if they did not install FGD, it would be regarded as a breach of the terms of the loan agreement.

He agreed that the vetting process was long outstanding, and there was a long delay in completing the vetting. It was their understanding that the vetting unit at the SSA had a significant backlog and they were now prioritising Eskom and hoped to see greater traction going forward. The Contract Management Office had been put in place at the Group Capital Division, and would be there until the end of the financial year in March 2023. There would be a Contract Management Office operational in all businesses across Eskom, which could be added to the issues that would be tracked on their progress going forward.

He said Econ Oil was the so-called dominus of the litigation, and they had made an application to have the Board’s decision to cancel the contract set aside, and in that role as the litigant, they had not taken further action. The fact that it was pending was not due to inaction from Eskom, but from Econ Oil.

The issue of bloated staff was an unfortunate narrative that was the consequence of a WB study that was rebutted several times with proper data. The WB had also acknowledged that it was based on faulty assumptions because Eskom could not be managed with the staff that was indicated by Eskom because they did not have an appropriate baseline to compare against.

Eskom had implemented stringent overtime management as a way to contain costs in their distribution business, and had been aware for some time that overtime was being abused. Work that should have been done during the week was often deferred to the weekend to enable staff to qualify for overtime. As part of their attempt to manage their costs, Eskom had implemented measures that unfortunately resulted in a reduction of their service levels during weekends in instances where only single households would require their service, which was applied across the Board and not restricted only to rural and remote areas.  

Follow-up question

Ms Mente said she understood the explanation of what caused the Medupi Unit 4 explosion, but wanted to know if there was a detection system for potential explosions in the units and what could be done to avoid them if there was no detection system, because another human error could happen in another generator. She asked what the CEO’s belief was on the staff complement of Eskom, besides the World Bank's statement. She said Eskom had removed services over weekends because it could not detect reference numbers issued on Friday and carried over carelessly to Saturday to create overtime. It was unfair for Eskom to punish households for failing to deal with their internal issues. 

Responses

Mr de Ruyter said they were working to reassess the necessary staff complement at Eskom. They had to consider the extensive investments that were required to rollout the transmission grid in excess of the 8 000km that had to be built, the Just Energy Transition to ensure that they could execute on the mandate to transition to a lower carbon economy responsibly and not leave communities behind, as well as the demographics of the organisation. Many of Eskom's key operations people were approaching retirement age and needed to be replaced, but they needed to be in the system for long enough to transfer skills to the youngsters that would be coming in, otherwise, the same mistakes of the past of not paying enough attention to skills transfer would be repeated. Eskom was currently at the right level of head count and if they cut further, they would run the risk of losing more skills and becoming even less reliable.

Mr Mathebula explained the purging procedure again.

The Chairperson interjected to say the Committee understood the procedure, but wanted to know if there was a detection system for the explosions.

Mr Mathebula said they used a manual process -- any time work had to be done in the chamber, it had to be purged with carbon dioxide and purged with air at a later stage before people could be allowed to work inside the chamber.

The Chairperson interjected again to say Ms Mente had asked a yes or no question.

Mr Mathebula said there was no detection system.

Mr Oberholzer conceded the point made by Ms Mente that it was unfair for Eskom to punish households for their failure to deal with their internal issues. 

Ms A Beukes (ANC) wanted to hear from the new Eskom Board Chairperson if he saw any light at the end of the tunnel and proposed that for the next Board session, it should focus on issues such as how to keep the lights on, and improve their communication with municipalities on the impact of recovering their financial losses. Municipalities needed to understand their billing system, because that was the cause of their non-payment of their Eskom bills. She asked if the appointment of 40 employees in the supply chain management departments at Eskom was for new posts, whether it was part of the organogram, why they were employed only recently, and what its impact on the budget was.

She asked the SIU if the cases that were withdrawn were based on lack of evidence. Under recommendations, the SIU had suggested that Eskom must monitor the lifestyle and financial transactions of high risk officials -- how were high risks identified, and were they still Eskom employees?

Eskom's response

Mr Makwana said they noted the observations and inputs of the Members throughout the meeting and thanked Ms Beukes for the pointers, and assured the Committee that the next time the Board was invited to the meeting, they would see the difference, as it would have immersed itself in the work that was required.

SIU's response

Adv Mothibi said high risk officials referred to the officials employed in more than one division in the entity, and a risk assessment would need to be carried out on the areas they would need to focus on. For example, special attention would be given to the employees in the procurement processes and SCM, because a lot of money was siphoned off through the procurement processes.

In the normal run of litigation, including disciplinary processes or any process where allegations or charges were withdrawn, it could be because of insufficient evidence or misrepresentations made, but in cases where withdrawals were made based on insufficient evidence, the SIU would try and source information so that charges could be brought forward and disciplinary action could be taken.

Mr Ashish Gosai, Chief Legal Counsel, SIU, said the matters that were withdrawn had not been withdrawn on the basis of a lack of evidence. In a normal disciplinary process against an employee, the employee would also be called upon to give reasons why they should not be disciplined. Those were the instances reported in the presentation. The employees made submissions to the Eskom management, and the Eskom management accepted those submissions and the matters were withdrawn.

Eskom's response

Ms Sankar said the 40 SCM position appointments were not for new positions. There had been a long period where the previous SCM management had not filled the vacant positions and had unusual people acting in those positions. The appointments were in the budget and in the structures, and most of them filled vacancies that had been filled by acting people for a long time.

Concluding remarks

The Chairperson said some questions had not been responded to, including the issue of the Ingula contractor. He said that the mine visit could happen on 25 November, as it seemed like a day that would be viable to do so, looking at the Committee programme. The Committee would discuss it further soon. On the issues raised by the Committee regarding the municipal debt to Eskom, the Committee would have a meeting on 15 November, according to its programme. There was also a duplication in the Committee programme regarding the prioritisation of reports, and the suggestion was that the Committee meet with the SSA on 9 November.

He said he had a long list of questions for Eskom, but would not ask them during the meeting because of time constraints -- he would ask them when another opportunity arose.

On 1 August, in the Ezinyathini area in uMbumbulu on the South Coast of KZN, a transformer exploded and nothing has happened since. People were living a difficult life without electricity. He would send the relevant details to the Eskom management and ask them to deal with the issue.

He said South Africans wanted certainty and clarity on the issue of load-shedding. He had noticed a trend of Eskom speaking in parables when talking about load-shedding lately. There was seemingly no commitment as to when the issue could be resolved. “The people need certainty, the economy needs certainty, SCOPA needs certainty so it can benchmark oversight and accountability against something”, he said.

He requested the Board to look at the root causes and the material areas which led to load-shedding and a deliberate action plan to deal with them so that if load-shedding could be resolved only after four years, they could inform the nation. Telling the nation now would be good for planning and certainty and small businesses and everyone to know that they should plan for the foreseeable future.

He said the fiduciary responsibilities of the new Eskom Board Chairperson meant that the buck stopped with him, especially in understanding the dichotomy of the structure of any SOE. "I am telling you this today so that there is no disagreement tomorrow when we put the hard questions," he said. At times the engagements would be difficult and unkind, but that was the nature of oversight and Parliament.

He was glad that the meeting had coincided with the arrival of the new Board, and wished them well in the execution of their duties and responsibilities. There needed to be a candid discussion about the PFMA, and he would appreciate the assessment of the Eskom Board Chairperson on the pros and cons of the PFMA as an enabler of the performance of SOEs and Eskom.

He thanked the Deputy Minister, the delegation from Eskom, the SIU and the HAWKS for attending the meeting, and for the comprehensive reports given.

The meeting was adjourned.