Eskom Inquiry report: adoption
28 November 2018
Chairperson: Ms L Mnganga-Gcabashe (ANC)
Audio
Eskom Inquiry report: adoption
Documents
Public Enterprises Portfolio Committee Eskom Inquiry Report 20 November 2018
Meeting Summary
The Eskom Inquiry Committee Report recommended that the Zondo Commission should summon two former ministers of the Department of Public Enterprises – Mr Malusi Gigaba and Ms Lynne Brown - to appear before it to share insight into the role they played as shareholder representative during the period corruption and corporate capture flourished at Eskom.
The Committee found that the executive arm of government represented by the two former ministers was grossly negligent in carrying out its responsibility as the sole shareholder of Eskom. On the basis of the evidence presented to the Inquiry, the Committee found that the legislation and policies that regulate the shareholder’s relationship with Eskom might have left room for interpretation that led to the inconsistencies. The tenure of former Minister Brown coincided with major incidents of unusual expenditure. She did not intervene in the re-appointment of Mr Brian Molefe as CEO following his resignation, his illegal pension pay-out, and the serious allegations of wrongdoing that aligned with the Public Protector State of Capture Report.
The Committee reported that it appeared that former Minister Gigaba’s overhaul of the Eskom board introduced a pattern of instability. It was unclear that the board he appointed had been sufficiently vetted in terms of integrity, collective skills and experience to govern Eskom and execute their fiduciary responsibility. The Committee found that Gigaba did not consider how his choice of board appointees fared in their roles, notably Ms Chwayita Mabude who was removed by Brown in 2017 and Mr Collin Matjila both of whom were linked to the Gupta family businesses in the Gupta leaks emails.
The Inquiry has confirmed contraventions of the Eskom Conversion Act, the Public Finance Management Act, internal and external governance requirements as well as other relevant legislation, regulations and internal processes. It is also patently clear there was undue influence by private individuals and companies over the appointment of Eskom board members as well as some procurement decisions.
The Committee found that Eskom’s implementation of transformation policies has not been uniform or transparent. In some instances, it has failed to deliver a fair and equitable distribution of contracts supportive of transformation. Eskom was exposed to escalating costs and considerable risk that stood in direct opposition to the broader goal of authentic transformation and development.
The Committee found that, in general, the various laws, regulations, codes, frameworks, and other agreements that together constitute the basis of Eskom’s governance infrastructure had been distorted, circumvented, misused, applied in a non-uniform and non-transparent manner, and ultimately failed to support Eskom in fulfilling its developmental mandate. The framework failed to protect Eskom from external interference and corporate capture, and this lead to the financial and governance crisis it now finds itself in.
The Inquiry has exposed a set of executives and senior staff that appear to have been part of a network that actively participated in irregular, corrupt, and unlawful contracts and processes at Eskom. It suggested that lifestyle audits must be conducted of the implicated individuals.
The Committee recommended that the Speaker should institute action against Ms Dudu Myeni, Mr Duduzane Zuma, and the three Gupta brothers – Ajay, Atul and Rajesh – because they refused to appear before the Committee during the Inquiry. The Committee further recommended to the National Assembly that the Judicial Commission of Inquiry into State Capture headed by Deputy Chief Justice Zondo should be requested to summon these individuals to appear before it.
Most of the matters the Committee’s Inquiry dealt with are found in the terms of reference of the Zondo Commission. The work done by the Parliamentary Committee could serve as a basis for further investigation by the Zondo Commission to uncover the full extent of wrongdoing at Eskom. The Committee recommended to Parliament that it hand over the Committee Report together with the documentation and the entire record of evidence collected in the course of the Eskom Inquiry to the Zondo Commission.
The Committee adopted the Eskom Inquiry Committee Report.
Meeting report
Ms Z Rantho (ANC), Eskom Inquiry Chairperson, took the Committee through the Observations, Findings and Recommendations in the Eskom Inquiry Committee Report. The Observations stated that it appeared that former minister Gigaba’s overhaul of the Eskom’s Board introduced a pattern of instability. The action of the Eskom board to comply with minister Gigaba’s apparent instructions to reverse a procurement decision taken by the previous board blurred the lines of accountability for its decisions and oversight by the minister as the shareholder.
Former minister Brown’s oversight over the actions of the executive and non-executive directors was inadequate and led to gross breaches of their fiduciary duties and potentially illegal acts. It is not apparent that the successive boards appointed by minister Brown had been sufficiently vetted in terms of integrity, collective skills and experience to govern Eskom.
The Committee observed that the Eskom board oversaw the systematic erosion of rules governing procurement and allowed for massive irregular expenditure. The Eskom board failed to account for the re-appointment of Mr Molefe as CEO, his pension controversy and his being implicated in the State of Capture Report. It failed to support the investigation of improper procurement by board committees and officials.
Observations
The observations are that the Eskom Board Tender Committee (BTC) disregarded the conflicts of interest of its members in transactions with Trillian and Tegeta. The BTC functioned as a mechanism to undermine the expertise of the Executive Procurement Sub Committee (EXCOPS) in taking good procurement decisions in the best interest of Eskom. There were incidents of inaccurate information on Eskom’s performance being communicated by the minister to Parliament and in other forums, notably in official statements and those made by the executives to the media. There was evidence of a deterioration in transparency required to maintain accountability.
Independent investigations into unusual or irregular activities appear to have been undermined. Internal disciplinary processes may have been manipulated to improper ends. The re-appointment of Mr Molefe and appointment of Mr Matsela Koko as GCEO in the face of prima facie evidence of wrongdoing were never satisfactorily explained, nor do they appear to be reasonable or defensible. Improper relationships appear to have allowed for external influence over Eskom operations and spending.
Findings
The evidence painted a disturbing picture of capture and repurposing of Eskom. The Committee heard evidence which illustrated the extent to which public procurement processes at Eskom and the exercise of public power had been used to serve the interests of private businesses and individuals. The abuse of public resources to benefit these private interests stood in direct contradiction to Eskom’s constitutional obligation to ensure that its procurement processes are equitable, transparent, fair, competitive and cost effective.
Evidence was placed before the Committee that various Eskom directors and senior employees acted inconsistently with their responsibilities in terms of legislation, including the PFMA. The corruption at Eskom undoubtedly contributed to the substantial loss of public funds and, in various instances, resulted in severe job losses in some companies competing with the Gupta family-owned companies, hampered transformation and might have caused environmental damage.
The Committee welcomed the court order that Mr Molefe must pay back the estimated R11m he had already received as part of the total R30.1m pension pay-out from the Eskom Pension and Provident Fund. The Committee also found that despite the various mandatory reporting and disclosure obligations, Eskom operations have been shrouded in inordinate secrecy which has undermined Eskom’s internal governance and controls as well as the oversight function of the Ministry of Public Enterprises and Parliament.
The existence, terms of reference, activities, reports and outcomes of various investigations into a wide range of impugned Eskom conduct have all too often remained hidden from oversight and scrutiny. In an effort to hold Eskom executives and its board members accountable for Eskom’s poor performance and for corruption and private corporate capture allegations, the Committee made multiple requests for information from Eskom, but it was not forthcoming. When Eskom did share information, such information was often incomplete and illegible. Failure to disclose such documents to Parliament may constitute a criminal offence in terms of the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act, 2004.
The Committee found the evidence that was presented by some witnesses who had occupied senior leadership positions at Eskom inconsistent and contradictory. The evidence failed to illuminate the extent of corporate capture, absence of ethical leadership and management, flouting of governance rules, laws, codes, and conventions that govern Eskom and these rendered it potentially financially unsustainable.
The Committee found there was failure to maintain clear lines of accountability by the Eskom board and management. This resulted in official lines of communication being circumvented and deep informational inequality among board members. Key decision-making authorities and Eskom’s internal legal support services were deliberately sidelined in order to introduce and act on external opinions to benefit certain private companies. The Eskom board members and other persons who held positions of authority at various times, failed to report acts of fraud, bribery, corruption and/or theft despite their reporting obligations under the Prevention and Combating of Corrupt Activities Act, 2004.
The Committee was concerned that even when external and independent reviews, investigations and reports about unusual, unauthorised or irregular expenditure, or unlawful actions were brought before the board, such investigations were often curtailed, subverted or undermined. As a result, the findings of these external and independent reviews, investigations and reports were deliberately withheld, censored or ignored by the board. The Committee confirmed it has never been furnished with a full list of such investigations and recommendations, despite requesting all reports submitted to the former Eskom board.
In general, the Committee found that Eskom’s implementation of transformation policies has not been uniform or transparent. In some instances, it has failed to deliver a fair and equitable distribution of contracts which were supportive of transformation objectives. It has exposed Eskom to escalating costs and considerable risk that stand in direct opposition to the broader goal of authentic transformation and development.
The Committee found loss of institutional capacity. The calibre of Eskom’s board and executive has steadily decreased over the past decade. This was the result and enabler of the various unlawful actions perpetrated at Eskom. Evidence before the Committee showed how Eskom’s internal policies and procedures were applied in bad faith to victimise or sideline long standing, competent and law-abiding executives, senior staff and experts. Indiscriminate and unsubstantiated actions were taken against some of them.
The Committee found that the executive arm of government represented by the two former ministers – Gigaba and Brown - was grossly negligent in carrying out its responsibility as the sole shareholder of Eskom. Based on the evidence presented in the Inquiry, the Committee found that the legislation and policies that regulate the shareholder’s relationship with Eskom may have left room for interpretation that led to the inconsistencies.
Many of the findings and observations of the Public Protector’s State of Capture Report have time and again been corroborated by the evidence before the Committee and the testimony of witnesses that appeared before it. The Committee was informed there were various meetings at which confidential Eskom business was reportedly discussed between ministerial and departmental support staff, Eskom board members, executives, senior staff, and various interested private sector agents. A number of witnesses confirmed to the Committee they had met with or engaged members of the Gupta family and their associates under dubious circumstances. The Committee found there was a corrupt relationship between the Gupta family, their associates and key state functionaries, and various gratifications were provided and accepted to influence Eskom board members and employees to act unlawfully and to induce Eskom to enter into a number of business contracts.
The Committee uncovered substantial and compelling evidence that a number of corporate entities amassed substantial illicit private gains, many of which have been funneled out of SA through shell companies and private accounts in Dubai and Hong Kong. The Committee heard evidence of how these contracts and agreements were reached through the weakening of Eskom governance structures, coordinated with actors in government, private sector and in the Eskom board, executive and management. Evidence before the Committee indicated that many of the transactions Eskom entered into and the seemingly improper relationship between public officials and private actors, involved bribery and corruption, money laundering and other financial crimes of the most serious kind.
The Committee found that, in general, the various laws, regulations, codes, frameworks, and other agreements that together constitute the basis of Eskom’s governance infrastructure had been distorted, circumvented, misused, applied in a non-uniform and non-transparent manner, and ultimately failed to support Eskom in fulfilling its developmental mandate. The applicable framework failed to protect Eskom from external interference and corporate capture, and this led to the financial and governance crisis Eskom now finds itself in.
Recommendations
The Committee recommended that the Eskom board must review the rules and procedures of the Eskom Pension and Provident Fund to ensure such payments made to Mr Molefe in lieu of benefits for which he did not qualify, which the High Court describes as “patently unlawful”, would never happen again. The Committee recommended that adequate steps should be taken by government to strengthen the legislative and policy framework applicable to Eskom and documentation formalising the relationship between Eskom, Ministry and Department of Public Enterprises. This would help to deal with weaknesses that include inadequate governance and oversight systems and a lack of clarity on the role of Eskom’s executive authority.
The Committee recommended to the National Assembly that a list of witnesses who failed to answer fully and honestly the questions put to them under oath or affirmation (particularly those who misrepresented Eskom’s internal policies in an attempt to legitimise conduct found by internal investigations to involve unusual, unauthorised or irregular expenditure) and those who told falsehoods and selective facts to justify unusual, unauthorised, irregular or otherwise unlawful expenditure, must be requested to appear before the Zondo Commission of Inquiry to shed more light on the allegations of corruption and state capture at Eskom.
The Committee recommended that government request National Treasury to review and strengthen procurement regulations for state-owned companies with large budgets. It requested Parliament to ask the Financial Intelligence Centre to assist Eskom in its mandate to identify the proceeds of crime, combat money laundering, supervise and enforce compliance with the FIC Act; and share information with law enforcement authorities, supervisory bodies, intelligence services, SARS, and other local and international agencies.
The Committee recommended that the new Eskom board should urgently engage the Auditor-General to address all irregular, fruitless and wasteful expenditure and to initiate disciplinary steps against any official as required by section 51(1)(e)(iii) of the PFMA who made and/or permitted irregular, fruitless and wasteful expenditure. The Committee recommended that upon conclusion of the forensic investigation into all financial irregularities, appropriate steps must be taken against any current or former employees and board members found to have been complicit in the wasteful expenditure as a result of these irregular activities.
The Eskom Inquiry has exposed a set of executives and senior staff that appear to have been part of a network that actively participated in irregular, corrupt and/or otherwise unlawful contracts and processes at Eskom. Lifestyle audits of implicated individuals must be conducted and reported to legal, regulatory and investigative authorities where necessary.
The Committee recommended to the Department of Public Enterprises and Cabinet that they should review the legislative and regulatory framework governing state-owned companies. This review must include a broad range of stakeholders and take into account the evidence of corruption and state capture uncovered in recent years by the Public Protector, Eskom Parliamentary Inquiry and other bodies.
The Committee recommended the two former ministers, Gigaba and Brown, must make presentations to the Zondo Commission to share insights into the roles they played as the shareholder representative during the period of corruption and corporate capture that flourished at Eskom. The Committee recommended to Parliament to develop mechanisms through which individuals and institutions that refuse to appear before parliamentary committees after being duly summoned in terms of section 56 of the Constitution, sections 14, 15 and 16 of the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act, No 4 of 2004 and Rule 167 of the National Assembly Rules, should face consequences. It recommended to the Speaker to institute action against Ms Dudu Myeni, Mr Duduzane Zuma, Mr Rajesh “Tony” Gupta, Mr Atul Gupta, and Mr Ajay Gupta, all of whom failed to honour their invitations to appear before the Committee Inquiry, and be summoned by the Judicial Commission of Inquiry into allegations of state capture to appear before it.
Lastly, the Committee recommended to Parliament to hand over the Eskom Inquiry Committee Report, together with the documentation and the entire record of evidence, to the Zondo Commission of Inquiry for further investigation.
Discussion
The Chairperson said this was not the first time the Committee had seen the Eskom Inquiry Report and she noted that the proposed amendments and corrections have been made to the Report and this was the final version which the Committee had to adopt before the new administration.
Ms Rantho noted that the Committee had followed the terms of reference for an inquisitorial inquiry and therefore no one was going to be charged. The report was accusing no one, but it only wanted to find facts. It will not be sent to anyone implicated. She asked if there was a need to caucus the report.
Dr Z Luyenge (ANC) replied that there was nothing new in the report and the Committee had nothing to hide. So there was no need for a caucus.
Mr S Swart (ACDP) said the Committee had to move in an open manner and discuss the report.
Ms N Mazzone (DA) remarked this was a good piece of work by the Committee and everything was clear and done in the public, not behind closed doors. The Committee had identified who was problematic.
Mr R Tseli (ANC) agreed the report was a reflection of the work of the Committee.
Ms Sueanne Isaac, Parliament Legal Advisor, told the Committee that the terms of reference provided that the report could be sent to affected person(s) for comments. But if the Committee was of the view no one was implicated, then it could decide not to send the report to any witness.
Ms Rantho said the Committee was going through an inquisitorial inquiry which did not accuse anybody. It did not find anybody guilty. She suggested the Committee should process it, adopt it, and present it to Parliament which would then hand it over to the Zondo Commission for further investigation.
Dr Luyenge stated people were invited to come and present their cases. Now the Committee had to inform the public about its work, and their duty as members was to ask Parliament to take the report to the Zondo Commission.
Ms Mazzone said the Committee was not introducing any new information. They were giving Parliament a report on what happened during the investigation. Judge Zondo was waiting for the report in anticipation. What the Committee conducted was oversight, not a judicial inquiry. Eskom does not have a right to reply to the report. The inquiry was part of the Committee’s mandate to carry out oversight on behalf of Parliament.
Mr Swart said he was in agreement with the other members. This inquiry would emphasise that the witnesses identified in the report should be invited to appear before the Zondo Commission once the report has been passed by the National Assembly.
Mr T Rawula (EFF) supported the submission of the report. He said people were given the opportunity to appear before the Committee to tell their side of the story. The parliamentary inquiry was exhaustive and it is their view that the report should be given to the Zondo Commission to take the work of the Committee further. The Committee has done its best to show that Parliament has gone deeper into investigating state capture and the report should be given to the public.
Mr N Singh (IFP) noted the Committee had agreed to look at Denel and Transnet although these entities were not captured in the Committee Report because time did not allow them to do that. The Committee needed to recommend that the Sixth Parliament look at both Transnet and Denel.
The Chairperson replied that they would mention to Parliament that time did not allow them to look at these two entities. However, the Committee had agreed not to dictate to the Sixth Parliament what to do.
Ms Rantho suggested that Mr Singh’s proposed amendment should be included in the Committee Legacy Report for the Fifth Parliament.
Mr Tseli suggested a recommendation that the Committee should be given quarterly progress reports on the implementation of the Committee recommendations.
Mr Singh suggested there should be monthly reports and there needed to be timeframes for updating Parliament.
Mr E Marais (DA) supported Mr Singh’s idea, and moved for the adoption of the report.
Mr Singh seconded the motion.
All Committee members agreed the Committee Report was the reflection of the work done by the Committee and it was adopted.
The meeting was adjourned.