Corporate Governance at Eskom; “Who is who in the Zoo”
18 October 2017
Chairperson: Ms D Rantho (ANC) (Acting)
The Committee was briefed by the former CEO of Eskom, Mr Brian Dames, and Mr Ted Blom, Energy Analyst and Energy Head at the Organisation Undoing Tax Abuse (OUTA), who was also a former Eskom employee.
Mr Dames commended the Committee for the inquiry but said that it was too late and the inquiry should have been conducted many years ago when they noticed executive members of Eskom resigning or being suspended for various reasons.
Members asked Mr Dames questions on the governance of Eskom during his tenure and how it had changed after he left. They asked if he had ever reported or raised the alarm when corrupt activities started taking place and when non-executive board members started interfering in procurement. They asked him what role the Minister played in interfering in tender processes of the steam generators at Koeberg. Members asked Mr Dames if he had ever engaged with the Guptas.
Members were concerned that Mr Dames could not recall if had met one of the Gupta brothers during a meeting in Midrand at Sahara Computers as he had indicated in his statement.
Mr Blom informed the Committee of the 400 000 tons of coal roughly worth R40 million rand that went missing and was subsequently written off by Eskom. He noted a meeting that took place in 2009 with ANC head, Jacob Zuma, at his house in Forest Town several months before he became President, where he gave Mr Zuma a document on the coal procurement corruption at Eskom. Mr Blom was told that a fixer team would be in touch to help fix up Eskom, only to be informed by the fixer team that they wanted to be part of the Eskom gravy train in looting Eskom and wanted him to help them.
Mr Blom was asked to provide the names of the individuals at President Zuma’s house and at the meeting in Midrand with the fixer team who were apparently prominent individuals in society.
Mr Blom revealed that Eskom was running at a R27 billion loss due to giving the Gupta owned company Trillian Capital Partners its derivatives to “play with”. Eskom had borrowed R480 billion from government to pay for R93 billion worth of assets.
The Chairperson read the oath to Mr Brian Dames since he wished to make his testimony public. Mr Dames swore to tell the truth in reply to all the questions that Members raise.
Witness 1: Mr Brian Dames
Adv Ntuthuzelo Vanara, Evidence Leader, Parliament of South Africa, asked Mr Dames to tell the Committee what qualifications he holds, how he rose through the ranks at Eskom, and when he became Chief Executive Officer (CEO).
Mr Dames replied that he started his career at Eskom in 1987. He graduated from the University of Western Cape with a BSc, and after completing his training he served as a Nuclear Physicist at the Koeberg Power Station. He also served as Engineering Manager, Power Station Manager, General Manager of the Nuclear Division, Chief Executive Officer of Eskom Enterprises (Pty) Ltd. He was selected as one of the middle managers in Eskom to study for an MBA at Stanford University in the United States. After graduation, he returned to South Africa as the Head of Eskom Executive Committee, and shortly after was appointed as Station Manager at Duvha Power Station. He worked at Duvha for four years. And in 2009 he was invited to apply for the position of CEO of Eskom Enterprises. He was successful, and was appointed in 2010.
Adv Vanara told Mr Dames that his interaction with the Committee would be focusing on the period from 2010 to 2014 when he was CEO of Eskom.
Adv Vanara asked Mr Dames to speak about the corporate governance at Eskom with reference to the governance structure, protocol, and documentation.
Mr Dames replied that it was commendable what the Committee was doing, but they were too late. Governance had to do with leadership. He was fortunate to have a strong team with him in the different levels at Eskom. After load shedding had ended and the staff were asked what they wanted, many said that safety at Eskom was important, load shedding needed to be extinguished for good, and also the governance of Eskom needed to be stable.
Mr Dames advised the Committee that when he left Eskom, the Committee might not have been concerned, but when other executive members left, the Committee should have been hugely concerned. Eskom was the biggest SOE in South Africa and it touched a lot of people. When Mr Dames left along with his team, over 100 years of experience at Eskom was lost, and the Committed should have been worried.
Mr Dames said that Eskom was a big company with 40 000 employees, and with assets that reached across the entire country and abroad. Those assets needed to be in the care of people that understood them intimately.
Eskom’s governance structure was always defined, and with an exceptional council, was also well documented. Under his leadership the company was transparent. Over the years, governance got expanded to include the expansion of Eskom through new builds and policy. The board instituted an independent audit of each procurement process. The board comprised of very sound executive individuals. The tone around governance changed after the 2010 World Cup. Only the CFO and CEO were retained. Every company had a rhythm which defined how reporting was done. Under his leadership Eskom received a lot of awards for their reports to the audit committees, shareholders, and Parliament. Eskom had never received a qualified audit under his leadership. Internal controls of the company could be checked. A catalyst report was the internal audits on all the audits done through the quarter and included routine technical reports. The internal audit committee could independently conduct an audit that would be approved by the CEO and the board. Eskom also had a nuclear oversight team. A nuclear oversight team at the Koeberg power station would take Mr Dames personally through the state of nuclear.
Mr Dames said that a shareholder report was produced every quarter and would include whatever the shareholder requested, whether a performance report, or reports on all the municipalities. He would also provide the board chairperson and Director-General a weekly report of how the power system was managed. He would do this through SMS at times.
Mr Dames said that Eskom had an investment grade rating while he was CEO, and it was very important for his team because Eskom had a borrowing programme close to R300 billion. The management of rating agencies was very important since they borrowed funds close to R1.7 billion overseas.
Adv Vanara said that in leadership the relationship between the Group Chief Executive and the Finance Director was important, as well as the relationship between the Group Chief Executive and the board Chairman. He asked was your relationship with the board chairman?
Mr Dames: I had a good relationship with the Chairman, but then one day I received a phone call that the entire board would be replaced and there would be a new chairperson.
Adv Vanara: Which chairperson did you have a good relationship with and who replaced him?
Mr Dames: I had a good relationship with Mr Mpho Makwana, and he was replaced with a Mr Zola Tsotsi. I also had a good relationship with the Finance Director, Mr Paul O’Flaherty.
Mr Dames replied that he was not a member of the Audit and Risk Committee (ARC) but he was always invited and sat in on the meetings. Mr Zola Tsotsi was a member. In one of the ARC meetings dealing with the appointment of auditors, the board had rejected the appointment of a new auditor and opted to extend the contract of the current auditors by one year.
Mr Dames: When Eskom was building Kusile power station, it was important that Eskom engage with the owner of the mining rights so as to set the contracts of the mine. A framework was agreed with the mining company, but they could never get this approved by the board. A requirement was that the mine should be 51% black owned as well as the operations of the mine. The Eskom Chairman and the Bid Tender Committee (BTC) Chairman decided to meet with the chairman of the mine contracted to supply coal to Kusile. After the meeting, the Chairman said that an agreement was reached on the structure, and I was asked to write to the chairman of the mining company to confirm the agreement so that my team could work on whatever was agreed to. Needless to say a letter was written and the response was that no such agreement on the structure was reached. By the time I left Eskom, there was no mining agreement, but by now the station must be running. I always felt that the board engaging with suppliers was wrong because where do they go if they have a problem. Engagement in procurement matters was not right. Personally I never served on Eskom procurement committees.
Mr Dames: With regard to the Koeberg steam generators, Eskom got to a point where Koeberg was the only utility running with old equipment and there was a recommendation to replace many of the steam generators. The board ran the process, the team got a mandate and negotiated with suppliers. This was around the time that the new Minister was appointed.
Adv Vanara: Be specific about who the Minister and Eskom chairperson were.
Mr Dames: This was the time Minister Gigaba came into office. The board chairman was still Mr Makwana. We were asked to cancel the steam generator tender for Koeberg because we had no approval or something. There were concerns raised that the suppliers were already in the country to sign the contract, but as Chief Exec, I was not aware of that. It became clear that one of the key issues over the years was that communication started flowing from inside Eskom to outside of Eskom. The board would know things that both Paul and I would not know, and that was a new environment for me. In any case the Koeberg steam generator process was restarted and we got PFMA approval. This was toward the end of my tenure. The Head of Generation came to me one day and said “Brian we have completed the process and the answer is exactly the same as the first time around. A report was submitted to the BTC but they have not called us in to present our report”. The board got independent opinions on this procurement matter, and the chairman of the Bid Tender Committee came to me one day and said “We had told the team that he would not be talking to them anymore, we would be talking to you as the Chief Exec. Here is the independent report and we would like you to change the recommendation of the report”.
Adv Vanara: Who was the Chairman of the Bid Tender Committee?
Mr Dames: Mr Collin Matjila. And I said what I had always done, “It was not a problem, give it to me. I’ll deal with it.” This is what I did. I worked extensively with the Koeberg team, corporate team, and legal team and prepared quite a detailed report and response to each of the recommendations from the independent auditing company. The conclusion of all of this was that the process was fine and the board should feel absolutely free to award the tenders. I think it was an award of the tender between two companies but I cannot recall the allocation of the work. I submitted my conclusion to both Mr Tsotsi and Mr Matjila and that was it. I cannot recall if it was months or weeks later but Mr Matjila came back to me, and this time with a handwritten note with minutes of the Tender Committee meeting, and this was quite strange to me because there was a Company Secretary tasked with taking minutes of board meetings. The handwritten letter had instructions that he should do the awarding of the tender. I again wrote a formal letter saying “I disagreed. I gave you my report, and if this was an instruction of the BTC, I will ask the team and the Head of Generation to meet with you, and you can tell them what it is you like”. By the time I left Eskom, the process was not completed.
Adv Vanara: In your tenure from 2010 to 2014, has the shareholder, the Minister of Mineral Resources played any role in the contractual negotiations between Eskom and different coal suppliers. You do not have to limit it to coal suppliers.
Mr Dames: The Minister of Mineral Resources did not play any role with coal suppliers to my knowledge. The Minister of Minerals was responsible for licences.
Adv Vanara: Was there ever a need for the involvement of a Minister with the concluding of contractual negotiations between suppliers of Eskom around coal in particular.
Mr Dames: No. my engagements were always with the Director-General of the Department of Minerals and Energy (DME) as it was called at the time, around strategic engagement of coal, because coal was important. There was a regulated energy price, and coal was an unregulated market. We could see from early on that the coal market had changed.
Adv Vanara: If there were to be facts presented to you of a Minister, particularly of Mineral Resources actively involved in a transaction of the purchase and sale of a mine which is a service provider to Eskom, would you describe that as appropriate or inappropriate conduct?
Mr Dames: It was not appropriate conduct.
Adv Vanara: What were the circumstances under which you left Eskom?
Mr Dames: I have to give credit to my family. There was a lot of pressure from them. But be that as it may, it became difficult to vouch for the governance of Eskom. I could no longer look up and know I have oversight or leadership of the whole organisation. I think that was the essence of it. My Finance Director, Paul and I saw this quite early. I knew I was going to leave Eskom. I knew the environment was conducive. We could do what was right but the organisation would not change. I think Paul and I got to the same conclusion at the same time. He eventually left, and I left too. I decided to resign from 1 February 2013. Why 1 February, because that’s when I started working at Eskom, on 1 February 1987.
After a meeting with the Executive, I asked the Board Chairman to stay behind, and I handed him my resignation letter. He was shocked. I never had a term contract with Eskom. I was permanently employed. The only requirement was to give six months notice. At first the Chairman was shocked and said that “this can’t be true, please give me time to engage with the board, to engage with the shareholder, and the Minister”. The board called a special meeting to discuss my resignation. The unanimous decision of the board was that “we cannot contemplate you leaving. Eskom cannot afford you leaving”. They asked me what I wanted and they would create a special board process to engage with me on that.
I gave it careful thought and listed five things only:
- I wanted the board to give me my performance expectations before the year starts, and the reason I did that was because for the years I had performance assessments done and there was no feedback from the Chairman. No indication of what I was doing badly or what they want me to focus on.
- I would like to have control over executive appointments. The reason is that when I came in and wanted to appoint executives in certain roles, I was not allowed to do that. There were performance issues, and some executives that I wanted to fire, I was not allowed to do that. I also wanted to move executives to different roles, but I was not allowed to do that either.
- I asked for a Chief Operating Officer. I had just lost Paul, and Eskom was big and there was a lot of work to be done.
- I wanted my salary corrected. When I got appointed, I had a contract with the board, and in the contract there was a salary for me as Chief Exec that was never implemented for all the years I was at Eskom. I still earned the salary before I became an executive. All the years, the board would award salary increases and bonuses, but mine were based on my old salary. The board knew the salary was outstanding, and at the time it was because the shareholder was doing a study on remuneration or something like that. I had always ensured that the rest of the team were properly looked after.
- The last request was that I would be allowed to take early requirement if I turn 55 like all other Chief Execs and executives prior to me, but if not and the board wants me to leave before I am 55 then they would pay me one month for every year of service.
The board held a meeting to engage me on the five requests. I explained and clarified the requests to them, and they understood but never gave me feedback. At one of the board breakaways, I had had enough, and took out the resignation letter and handed it to the Chairman. It created quite a lot of anxiety. The meeting stopped and the issue of my resignation was dealt with.
Mr Dames: I received feedback one day via a letter left on my desk. It read “We are not going to give you a Chief Operating Officer or any of this, and you can leave December 2013”. That was fine. No one spoke to me about it, and I continued. I found another job that was important and good for me. While I was in a meeting overseas in the latter part of 2013, the Head of Eskom Sustainability, one of my Executive Procurement Committee (EXCOP) colleagues called me and said to me: “Brian, you got a death threat, and this threat was left on your desk. We phoned your family, they are fine, we have checked with them and if they know any of this, and we are looking after them”. When I returned to South Africa, I had Eskom protection from that day until the day I left Eskom. I always had three people with me. I could not go shopping, and when I played golf, I always had three people with me. The death threat was reported by Eskom security to the police. I have never received feedback. When I came back, they showed me this threat made from newspaper clippings that was left on my desk. Towards the end of November, I alerted the Chairman in one of our normal meetings that our interim results were due in early December 2013, and he must remember that I am leaving at the end of December 2013 and he needs to announce the resignation. No one has come to me about hand over or anything like that.
Mr Dames: The Chairman said to me “Brian you are not going anywhere!” I said to him that I gave him a letter, he responded that I never gave him a letter. I told him to please go check the letter. He came back to me and realised that that was indeed the case. I received another letter left on my desk that read “We want you to stay until the AGM of Eskom”, which was around June. I refused because by now I had had enough. I told them that if you want me to stay, the best I could do is finish the financial year in March 2014 but they would have to pay me all my incentives because I had given up the job I found. In 2014, at an AGM of Eskom the board had corrected the salary issue for the last three/four years. Eskom finally announced my resignation on 5 December 2013.
Mr Dames: In early January 2014, the Chairman went to Davos, Switzerland with one of the executives. I never went to Davos while I was at Eskom. January was an important part of the year, maintenance would be done, everybody comes back to work, the factory starts, and load shedding also happened in January. When the Chairman came back from Davos, he said to me that “we would like to appoint an Acting Chief Executive while you are here”. I said no, and that I have a contract with Eskom, and why would they want somebody else. There was no such thing as democracy in management. I phoned the chairman of the remuneration committee to check whether this was a board decision, and he said “No. the board has a contract with you until March 2014 and we expect you to stay until March”.
The board chairman and the person he decided would be Acting Chief Exec started having meetings with EXCOP without me, while I was still in office. I do not know what they discussed or what happened. EXCOP members were uncomfortable and came to me asking why I was not present at those meetings. I left it at that. It gives a sense of how one was treated and respect was lost. The Board Chairman came back to me and by this time the Board must have spoken to the Minster to make an acting appointment and the Minister did not agree with it, and the Chairman asked me for help and that I talk to the Minister. Needless to say I was asked to do an exit report for the shareholder, which I did, and continued to do my work two days before I left Eskom. The Board Chairman and Mr Matjila and one of the executives came into my office and said that Mr Matjila would be the Acting Chief Exec of Eskom. They asked me to do the hand over and I refused. They had known that I was leaving from February 2013 and did nothing, but were now coming to me two days before I am leaving asking me to do the hand over. Everything was in the documentation and they could go and read it. They also asked for my cell phone number and I refused to give it to them. My last job at Eskom was to do a performance assessment for the head of Treasury, and then I left.
Adv Vanara: You said that it would be inappropriate for the Minister of Minerals to be involved in negotiations in the contractual relationships between the service providers of Eskom on coal. What is your reasoning that such a relationship would be an inappropriate relationship?
Mr Dames: The Minister was also the regulator. There was no role for a Minister in any procurement matter of a company other than what was allowed for within the approvals, whether it was PFMA approval or materiality framework. Other than that there was absolutely no role. I am sure that Ministers do engage with executives from companies all over the world and those should be issues of policy.
Mr S Swart (ACDP): Did you receive a R30 million pension when you left? What is your comment on reading about Mr Brian Molefe receiving a R30 million pension for 18 months work?
Mr Dames: I did not receive R30 million and I was at Eskom for 27 years.
Mr Swart: Were aware of any corruption allegations and what steps did you take about the Chancellor House deal?
Mr Dames: With all the issues around regulation, they would have these investigated either internally or externally. With regard to Chancellor House, teams working on the tender were separated with different functions. The team picked up on the Chancellor House and raised it with the board. And the Public Protector also investigated.
Mr Swart: Would it be correct to say that the level of political interference increased after Minister Gigaba, and that soon after his appointment, Mr Matjila finalised The New Age deal? Were you involved in The New Age deal?
Mr Dames: Information was being fed that Paul and myself were not aware of. There was engagement with The New Age. It was very public.
Mr Swart: Is it a concern that the Koeberg steam generators still have not been replaced, and does this present a threat to residents in Cape Town?
Mr Dames: The generators needed to be replaced urgently.
Mr Swart: It is unacceptable that the tender for replacing the generators was awarded only recently, and with a R2.1 billion price higher than the original contract. Can you comment on this?
Mr Dames: The Duvha Unit failed after maintenance check. By the time I left Eskom there was no root cause for why the boiler at Koeberg failed.
Mr Swart: Have you speculated why you received death threats, and if it had to do with information you could disclose?
Mr Dames: I had not speculated, I was consumed by my work and Eskom security looked after me very well.
Mr Swart: Did you receive threats before coming before the Committee here today.
Mr Dames: I have not.
Dr Z Luyenge (ANC): What was the worst memorable instance of illegal interference during your tenure at Eskom? What was your role in ensuring that the unit of the Department of Planning, Monitoring and Evaluation (DPME) was actually doing its work? What is the good of people choosing to run away instead of staying and finding ways to deal with challenges at the institution? How would you justify the interference of Minister Gigaba at the time, and what was illegal and unprocedural in his involvement in board decisions? Was disciplinary action taken against any Eskom staff or board members who benefited from tenders? Were there any external forces that influenced the Board’s work? How best could you quantify the monetary loss during your tenure which culminated in the exit of management including yourself?
Mr Dames: The worst instance of illegal interference was the Koeberg steam generators, as well as the fatality of six people at Ingula.
Mr Dames: Eskom provided the shareholder and National Treasury with information about all performance at Eskom, but had no direct engagement with DPME.
Mr Dames: Other executives had not run away. I left first, and at the time it was severely difficult to articulate how things unfolded when I was asked why I was leaving. I did not know why other team members had left, but I did see many of them after leaving Eskom.
Mr Dames: Some were interventions and others were interference by the Minister. Communication was not always clear. The Minister would sometimes have meetings with Eskom staff.
Mr Dames: There were issues with some members of the executive having benefited from some procurement processes and I investigated all issues and conducted disciplinary action myself where it was necessary.
Mr Dames: There was no management exodus while I was at Eskom.
Ms N Mazzone (DA): Were you or anyone in your executive ever asked to meet with or consult with any of the Gupta family members or Mr Salim Essa?
Ms Mazzone: The negotiations for Glencore mines and coal structuring development started in your tenure. Explain the sudden increase in the price of coal, and what you did about it.
Ms Mazzone: Did you know of any influence that Mr Tshediso Matona had received from foreign influence when he served as one of the Acting CEOs in 2014?
Ms Mazzone: Who did you report to on the Hitachi deal, and how did you report?
Ms Mazzone: The cost and time overruns of Medupi station were enormous. To whom did you report the tender irregularities in Medupi?
Mr Dames: I was asked to meet with some people by Minister Gigaba’s advisor, Mr Siyabonga Mahlangu. I did not know who the Guptas were before the meeting but I went to the meeting. There were two people at the meeting. One of the men could have been one of the Gupta brothers, but I am not sure. After the meeting I was very angry and requested that Mr Mahlangu not organise such meetings again. There was a request by the individuals at the meeting for a coal contract for Lethabo power station; another coal station after Medupi and Kusile; also The New Age deal. I do not think I have ever met Mr Essa.
Mr Dames: I was a member of EXCOP in 2007 and was asked to come down to Cape Town to solve the problem of load shedding. When I was asked to take over in February 2008, I visited all the power stations and it was very clear that there was no coal and I gave my assessment of the plants and coal situation to the board. We worked up until the 2010 World Cup and worked with coal mining companies, and leading logistics companies. We bought coal, and by April 2010 load shedding stopped.
Mr Dames: The cost pricing for coal was very high and we were transparent about this.
Mr Dames: When I was a member of the executive, I was not responsible for generation. There was a request for Billiton, which owned the Optimum mine to sell its mine to Optimum Coal Holdings. Amongst the executives, I was against it. I was not the Head of Generation, and I was not responsible for coal, but I was against it. When I arrived at Hendrina power station where Optimum was, two things struck me; there was a mountain of coal at the plant and when I asked the station manager what happened, he said that over the years Hendrina had significant fine coal and it got wet, which became a nightmare as it resulted in coal that they could not produce, and they asked me to fix this. The request for Eskom to consent to transfer ownership of Billiton came back when I was Head of Eskom, and I agreed with my team but we were going to fix the Hendrina problem.
Mr Dames: We asked them to take the fine coal out, and give us less coal. We then improved the coal quality specifications, and increased the penalties, and we asked specifically that the rehabilitation fund be funded in cash.
Mr M Gungubele (ANC): Who was this chairperson that came to ARC meetings and started giving directives in a manner that was not founded?
Mr Dames: It was a Mr Tsotsi.
Mr Gungubele: What was his response to your disapproval?
Mr Dames: The board noted our disapproval in the committee meeting and noted that in the minutes, the same recommendations of the committee were tabled to the board and it was again in the minutes, but the tender was cancelled.
Mr Gungubele: Which tender was cancelled?
Mr Dames: The appointment for the auditors.
Mr Gungubele: If I get you, there was a direction that black auditors be appointed and then you recommended a particular process for that to be done. Can you repeat what that particular process was?
Mr Dames: After the first year, we gained the requirements of the ARC, and the direction was that “We would like to transform our auditors”. We agreed with that and were quite clear that in doing that, if there was a specific outcome there would need to be an exemption. We did not need the exemption. But National Treasury said that there was no need why Eskom needed to change the tender evaluation criteria.
Mr Gungubele: Can you quickly repeat the story of the Kusile saga with regard to mining and board members interfering in procurement processes?
Mr Dames: We needed to take our understanding with Anglo into a firm mandate to negotiate the contract. There was a requirement for management and ownership to change. The engagement with the board directly picked it up with Anglo. It was unusual.
Mr Gungubele: It is either you say it is irregular, or unusual. Which is the correct one?
Mr Dames: if you are part of the adjudication of the outcome you have negotiated, it would be unusual and you should recuse yourself. To engage with the supplier at the strategic level was definitely unusual.
Mr Gungubele: What makes it unusual?
Mr Dames: It is unusual because matters of procurement would normally be left with Eskom and with the company.
Mr Gungubele: What did you do about the trip to Areva in France in December 2013 which was paid for by Areva, are you aware of such a trip? Was it usual or irregular and what did you do about it?
Mr Dames: I know about the trip. The BTC had responsibility for the nuclear oversight at Eskom, ad what we did for many years was take board members who did not have any nuclear training to MIT in the USA. It was a nuclear course for non-nuclear executives.
Mr Gungubele: Was this a trip sponsored by Areva?
Mr Dames: No. Eskom paid for the trip. The board went on the trip to MIT. Then they wanted training that was also not just from an American perspective so they went to France.
Mr Gungubele: Who sponsored that trip finally?
Mr Dames: I am not sure. We must check. Eskom was supposed to pay for the trip.
Mr Gungubele: You have no memory of the trip being sponsored by Eskom?
Mr Dames: The training would have been done by Areva, but the payment for executives to go should have been paid by Eskom.
Mr Gungubele: Was the Minister’s intervention unusual or irregular when canceling the contract for steam generators?
Mr Dames: I would have to go back and check.
Mr Gungubele: Was it was correct for a Minister to take such decisions and say that what the board had signed off on was not correct?
Mr Dames: If proper processes were not followed then it was correct for the Minister to intervene, but correct processes were followed and it was therefore not correct.
Mr F Shivambu (EFF): How long were you an executive of Eskom?
Mr Dames: Since 2004.
Mr Shivambu: Did it happen before that a Minister intervened in procurement processes?
Mr Dames: I had no instances of engaging with the Minister or the shareholder, that was normally the domain of the Chairman and the Chief Exec. The one engagement with the Minister was before the World Cup when all our units were striking, and because of the importance, Minister Hogan at the time worked with us around the negotiations with the unions.
Mr Shivambu: What did Mr Mahlangu say to you when he called to organise the meeting with the Guptas?
Mr Dames: I cannot recall the exact discussion but it was to the effect “We would like you to meet with some people”. At the meeting there was one individual whom I think was one of the Gupta brothers.
Mr Shivambu (holding his iPad up with a picture of the Gupta brothers) asked “if the individual at the meeting looked like one of them”.
Mr Dames: I cannot remember the face clearly.
Mr Shivambu: And the person said “We would like to work with you”
Mr Dames: Yes. I assume it was one of the Gupta brothers. It was not something which was very popular at the time; otherwise I would have recognised the person immediately.
Mr Shivambu: Did you report Mr Mahlangu to the Minister?
Mr Dames: No, I did not.
Mr Shivambu: I want your broad picture of the finances at Eskom when you arrived there and when you left, because you said at some stage you borrowed R1.7 billion without guarantees.
Mr Dames: In 2009/2010, we needed to do a lot of work around Eskom’s financial sustainability. We engaged with departments and government around how this would be achieved. We had the capital and operating costs with coal costs. The second part of the equation was whether we would sell parts of Eskom, and how we would sell them. The decision was that we would get guarantees to increase Eskom’s funding model. This would involve tariff paths, cost structure, and capital expenditure we would be having. The approval said that we needed to raise R300 billion. By the time I resigned, we raised 90% of the R300 billion. We started the first fundraising programme with the United States and raised R1.75 billion. The World Bank loan was part of that.
Mr Shivambu: Why did you not require government guarantees?
Mr Dames: We had government guarantees. It was a function of the pricing of the loan and both guaranteed and nonguaranteed. If it was guaranteed then it was priced better. We believed that the fact that Eskom was audited by government, the guarantee would implicit and explicit. We were quite clear that the less we could burden the state, the better. And Eskom successfully raised the funds.
Mr Shivambu: In your assessment, did you leave Eskom in a healthy financial status?
Mr Dames: When I left Eskom, one of the parts of this equation did not work out, which was the price application. We raised very publicly that it was a massive concern. We had the power system that was very constrained and we had to use more expensive sources of power. One of the tasks I was given before I left was to come up with a savings programme inside of Eskom, which I did and it needed to be implemented. The programme was about R60 billion of saving opportunities.
Mr Shivambu: Do I understand correctly that the major reason that led you to resign was because the board was interfering in procurement processes which should otherwise be management decisions?
Mr Dames: As I said earlier, I could not vouch any more for governance looking up and down and having oversight while leading the company. It became quite difficult to manage all of this. It became quite difficult and there are a lot of examples that I have given.
Mr Shivambu: Are the examples you gave the only instances where the board chairman or any member of the board interfered in procurement, or are there additional instances which you can make submissions on?
Mr Dames: When I spoke to Adv Vanara, those are the instances I can recall. There may be many others, but these are the ones that stood out for me on issues of process being unusual, that never happened for the 27 years that I was at Eskom.
Mr Shivambu requested through the Committee Chairperson that she ask Mr Dames to remember the instances of procurement interference and make formal submissions that that could help the Committee that “Zola Tsotsi made procurement interferences on so and so”.
The Chairperson said that it can be done and that Mr Dames should not have a problem in doing that.
Mr N Singh (IFP): Can you assure the Committee that your submissions here today are credible and factual and that critics out there do not feel that you have an axe to grind with anyone at Eskom.
Mr Singh: What would you say to critics who said that it was Mr Brian Molefe’s intervention that ensured that load shedding was a thing of the past?
Mr Singh: What was your relationship with independent power producers (IPPs), because yesterday we heard that they can provide electricity to South Africans at a cheaper price?
Mr Singh: What is your thinking on the proposed nuclear deals that are envisaged to be signed by government?
Mr Dames: I was approached by Adv Vanara, and if any small contribution could help the process then we should do that. This is our country. These organisations are important to serve South Africans. To a great extent, you asked me to help, and I am here to help.
Mr Dames: I cannot comment whether there was a magic wand that stopped load shedding. We worked very hard from the position we were in in 2007. In 1998, government took the decision not to invest in power and it took 10 years to see the outcome of that decision. By the last corporate plan we did an assessment of Eskom and knew that South Africa was going to have excess capacity. We even identified the power stations that would need to be shut down. The fact that today we have excess capacity is because the economy is not growing. In 1998 you had the problem and did nothing about it. [Laughingly] I wish I was at Eskom now. The last time that Eskom was in this surplus position was probably in the late 70s when the country went through the same thing so I cannot really comment on the magic wand.
Mr Singh: What would you do to turn Eskom around if you were appointed as CEO now?
Mr Dames: It would take something completely unusual, you may need to remove the board completely and senior executives, and take two or three senior executives to deal with the entity with full authority. I never believed in restructuring Eskom. I would follow the Chinese model; break the generators up into different parts of Eskom. I would only do that for one single reason; the value of governance. All of us underestimate the value of leadership and governance.
Mr Dames: I supported the programmes when the initial proposals were done. At the time my team did IPPs, they were more expensive than Eskom. There have been significant improvements in costs and in production. I would support the private sector. It needs to be noted that where I currently am, I am completely conflicted. Government funding can be used to deal with issues of the people.
Mr Dames: Where we are today in South Africa, there is absolutely no need for nuclear, neither does Finland or France need it, but they are still trying to build it. The Americans do not need it either and they have completely stopped it. South Africa does not need it, and cannot afford nuclear. I have personally run a nuclear procurement for this country while at Eskom, and after seeing the prices of nuclear we made a decision not to proceed with it.
Mr Singh: You said that the Committee was too late with the process and that we should have started many years ago. Many of us in the Committee were not in this Committee five years ago, except one or two members. What do you think are the consequences of this process having started this late?
Mr Dames: I would struggle to answer that. I cannot believe what I am seeing happening at Eskom after spending 27 years at Eskom. I cannot tell you the consequences; we have seen what has happened.
Mr P Gordon (ANC): What sort of premium is paid now compared to what was paid when you were CEO, with regard to lending?
Mr Dames: I do not know what the current rates are and cannot answer that question.
Mr Gordon: Did Minister Hogan share why she was dismissed?
Mr Dames: No, she did not.
Mr Gordon: What changed in terms of good governance, competitive process, and everything being above board when Mr Tsotsi became board chairperson?
Mr Dames: It was unhealthy for a board chairman to be involved in procurement processes.
Mr Gordon: What changed from Mr Mokwana as board chairperson to Mr Tsotsi?
Mr Dames: Mr Mokwana had clear experience in his role and understood the role of a non-executive not involving himself in procurement processes; whereas Mr Tsotsi was heavily involved. It was raised to Minister Gigaba and it was said that “Brian is arrogant!”. However, I stated that a Chairman was a non-executive and was not to be involved in procurement processes and meeting suppliers.
Mr Gordon: What advice would you give to international firms like KPMG, SAP, and McKinsey who would want to do business with the South African government?
Mr Dames: I worked with McKinsey shortly after leaving Eskom, and I would often raise some issues and they would tell me that I was no longer with Eskom and was employed to do one task and function. I would advise that firms follow practices and be transparent.
Mr Gordon: In the overall scheme of state capture, it seems suspension and getting rid of key skilled professional people was very much part of the scheme. What purpose does that serve from your point of view, in an entity like Eskom? You referred to a number of people who have been suspended or gotten rid of for one reason or the other.
Mr Dames: I do not know the reason why some people were suspended. The Head of Coal was a brilliant mind. The CIO ended up being the best IT person in the country, and he is not at Eskom any more. It made no sense at all for people to be suspended. If a person had done something wrong then they needed deal with it and to fire the person.
Ms G Nobanda (ANC): What exact date did you leave Eskom, is it May 2013, or March 2014?
Mr Dames: March 2014.
Ms Nobanda: What were the reasons you gave when resigning?
Mr Dames: I specifically put emphasis on my family, and personal reasons.
Ms Nobanda: You were not specific about whether one of the people you met with was one of the Gupta brothers, and since the time you resigned you could not recollect. Chairperson, can you ask Mr Dames if one of the men he met was a Gupta because they are everywhere in the media, newspaper, TV, and movies.
Chairperson: Can you respond to that question Mr Dames?
Mr Dames: Chairperson, I honestly cannot recall. I have not watched any movies.
Mr Shivambu: Where was the meeting?
The Chairperson: He was called and asked to meet some people, and at the time the Guptas may not have been as prominently in the public eye as they are now. The question perhaps could be how long did your interaction with them at the meeting last?
The Chairperson: Where did the meeting take place?
Ms Nobanda: I am having a problem with Mr Dames’ answer because if I had met one of the Gupta brothers in 2005 I would be able to remember. I cannot believe that Mr Dames cannot recall.
Ms Nobanda: What is your view of transformation at Eskom, and when were you appointed at McKinsey?
Mr Dames: The meeting was held in Midrand at Sahara Computers.
Mr Shivambu walked across the floor to show a picture of the Gupta brothers, but Mr Dames could not identify the person he met with.
Mr Dames: Transformation is important in Eskom, and it still remains important today. We have to make sure that all our people participate in all aspects of society, including in business.
Mr Dames: My engagement with McKinsey started after I left Eskom. I am not sure if it started in April or May 2014, but it was definitely after I left Eskom, and I phased out of McKinsey in late December 2014 / early January 2015. I have been with my current employer since August / September 2015.
Ms Nobanda: What was your position at McKinsey?
Mr Dames: I was a Senior Advisor at McKinsey, and worked mainly outside of South Africa, in the Middle East, Africa at large, and Germany. I did absolutely no work at Eskom or any SOE.
Mr R Tseli (ANC): It is problematic that you cannot remember who you met with since you indicated that these were the Guptas in your presentation but you cannot recall them.
Mr Tseli: What was controversial about the pension monies you received from Eskom?
Mr Dames: There was nothing controversial.
Mr Tseli: Was it not released immediately?
Mr Dames: I was not aware that it was not released immediately. The money was transferred from Eskom to the provident fund, and that was it.
Mr Tseli: What are some of the findings that kept on coming in the audit opinions despite the fact that the company did not receive a qualified audit, while you were the CEO?
Mr Dames: I cannot recall those, but we can look at the Eskom Annual Reports. All the issues are recorded in the reports.
Mr Tseli: From where was the R1.7 billion you spoke about raised?
Mr Dames: The 1.75 billion dollars if I can recall correctly was raised from investors through a US Dollar bond issue that was a 4 billion dollar programme and $1.75 billion was the first part of it.
Mr Tseli: Was the 51% ownership that was required of the new auditor a directive from the board or an agreement?
Mr Dames: It was a directive from the board as to the ownership of the new auditing company.
Mr Tseli: There was this directive from the board to change the recommendation of the Bid Tender Committee that you spoke of earlier. By the time you resigned, what happened to that particular matter – was it still not resolved?
Mr Dames: I did not investigate anything. By the time I resigned, the matter was not concluded. The matter went to court and the judgement was in favour of Eskom.
Mr Tseli: What is your take on the 400% electricity price increase?
Mr Dames: I have not looked at the actual application, but it is high. I have not looked at the data and therefore it would be difficult for me to comment on that. But it was high.
Mr Tseli: Some of the documents at our disposal have a R20 billion maintenance budget that disappeared somewhere around 2010. I am not sure if it was before or after you were appointed CEO. Do you know anything about it?
Mr Dames: Not to my knowledge. If that is the case then it should have been reported to Eskom and it should have been investigated, and if not, then it should be investigated.
Mr Tseli: What are the key issues from a governance point of view have changed since you left Eskom?
Mr Dames: It is quite a difficult question to answer. I cannot comment on what has been happening, I can only read what has been happening like the rest of us.
Mr Tseli: From what we are reading in the media, what are the key issues which seemed to have changed after you left Eskom?
Mr Dames: Stability around the executive is one specific issue. Processes that were there were not followed. The suspension of executives was unusual. Those are some of the things that have changed. Changes in leadership were not there in the past.
Mr E Marais (DA): There should be good working relationship between the CEO and the board chairperson. It was odd to appoint two people in the Chairman’s office. When you come back to your office as you described, you found an envelope with a letter in it. Surely there should be engagement between the board chairman and the CEO of such a large company. Did you feel that two people appointed in the office of the Chairman should in some way be run past you as the CEO of Eskom?
Mr Dames: I would expect decency and discussion around succession. The two individuals did started interacting with parts of the company, and that was the communication I was talking about. The communication was not flowing through the Chief Executive or the Finance Director.
Mr Marais: How could you describe your relationship with the Minster of Public of Enterprises?
Mr Dames: I had no bad engagements with Minsters. I was always clear about issues I needed to raise and deal with.
Mr Marais: Did you experience or have any bad interference from any of the Ministers in Cabinet while you were CEO.
Mr Dames: I had working relationships with all the Ministers whose departments affected Eskom.
Mr Marais: Were certain projects manipulated to benefit certain specific companies?
Mr Dames: The procurement of Medupi went through some sort of investigation around particular issues. The Public Protector investigated some of these and other issues were investigated by Eskom as they arose. Everything was done transparently with the procurement for Medupi and Kusile.
Mr Marais: In your view, should the Hitachi contract not have been award to do the specific job it did.
Mr Dames: The procurement for power stations was done and the outcome of the procurement was a recommendation that the company should do both the boilers and the turbines. And that was public knowledge. We could not reach a contract agreement on the boilers, but we reached an agreement on the turbines, and this meant that we had re-evaluate both tenders and out of the re-evaluation, the appointment of Hitachi emerged and it went through proper procurement channels. Independent checks were done leading to the appointment of Hitachi.
Mr Marais: Was there interference from any person down the line while these two big capital projects were on their way, because the overrun time on Medupi and Kusile were enormous and their budgets more than doubled.
Mr Dames: Issues were raised and dealt with, and there may be more that needs to be raised and dealt with. The Medupi budget was R92 billion. By the time I left Eskom, the budget was R105 billion. The projects were big, there were many delays, the committee was there, labour issues ran for more than a year, and there were contract issues. It could have been done better and it should have been done.
Mr Marais: When you were CEO, did you have a strict hand on the maintenance of power stations going into the 2010 World Cup, because it seemed that the maintenance was not fully dealt with. Since the economy did not grow, the demand for more energy was not there. When the demand was there, was there maintenance for all the existing power plants?
Mr Dames: Eskom had huge maintenance programmes, and there were huge challenges around the maintenance of pipes. Maintenance was done, but the effectiveness of maintenance was something I had an issue with.
Mr Marais: What was the reason Mr O’Flaherty gave for leaving Eskom?
Mr Dames: There issues raised about some things he did and it was not a conducive environment. We were both committed to finish off Medupi but the environment could not allow us.
Chairperson: I am worried that Mr Dames stated that the Committee started the inquiry process very late because it seemed that the Committee let the country down. There were people like yourself at Eskom and you never raised any alarm to the Committee or any authorities and that raises suspicion.
Chairperson: What do you think could have been done at the time when you saw what was happening at Eskom, and what is happening at the moment.
Mr Dames: I did raise alarms, and I engaged with the former Chairperson of the Portfolio Committee on Public Enterprises and the Chairperson of the Portfolio Committee on Energy. Things might not have been as clear then as they were now but I did raise the alarm.
Chairperson: It was in 2010 when you said things were changing. Did the role of Eskom change in 2010 because of the huge amounts of money that came into the economy due to the World Cup, and did Eskom benefit from that?
Mr Dames: I noted 2010 because that was when the new board was appointed.
Chairperson: Eskom is in crisis. Is there a chance to change the direction that Eskom seems to be taking to get it into the correct direction, and how would that affect people on the ground?
Mr Dames: I am very optimistic that things can be changed.
The Chairperson thanked Mr Dames for availing himself for the inquiry and was glad that he had not received any threats for coming to the inquiry.
The Chairperson urged Mr Dames to report any threats that may come his way.
Mr Ted Blom, Energy Analyst and OUTA’s Energy Portfolio Director, said that he was head of an Eskom unit from 1988-1991, and that is the unit McKinsey wanted to charge Eskom R1.4 billion to reconstitute, and he could charge Eskom less than 10% of that cost. He holds qualifications in commerce, law and mining.
Corruption started with tenders not been awarded or proper contracts not followed. The breaching of the PFMA was the activity that allowed corruption in the coal sector. A review was done on the 2005 Annual Report that power stations were needed. It would cost R93 billion to build four power stations. Only three have been rolled out thus far: Medupi, Kusile and Ingula.
All the large auditing firms have had contracts with Eskom even when tenders were not put out on open tender processes. It was distinctive that McKinsey was still involved with Eskom for 12 years since appointed in 2005. It was highly irregular for a turnaround firm to take 12 years to present its turnaround strategy.
In 2006 the first major fraud in coal procurement was detected. It involved bribery of labs which resulted in the wrong specifications for coal. In 2007, Eskom had to write off more than 400 000 tons of coal which they “could not find”. Layout brokers were appointed in 2007 and they found that there were kickbacks paid directly to senior Eskom executives. The new build project was embarked on without any guarantees and a team that had no experience in building power stations.
Over a period of a few years, Eskom’s assets were also increased from R200 billion to R700 billion in value but the issue was that no new projects had been completed. Eskom borrowed R480 billion from the government to pay for R93 billion worth of assets. Effectively, Eskom had paid 14 times more than the market value of its assets. Mr Blom said that “even if Eskom became privatised, it would only raise R200 billion”. The over-valued assets were a result of Eskom’s high growth forecast in order to guarantee itself profits whether or not it provided energy. The evidence for the forecasting was in the National Energy Regulator of South Africa’s ability to drop the price of energy by 10% after spending much time qualifying its amount.
Eskom is running at a R27 billion loss to date. The debt was due to Eskom giving the Gupta-owned company Trillian its derivatives to “play with”. In total, more than R1 trillion had moved through Eskom’s treasury. The government had sold shares in Vodacom to bailout Eskom, and the government had loaned the parastatal R60 billion. Eskom would not be able to pay back the money it borrowed. Despite the denials of wrongdoing from people in Eskom, a crime report had been released which implicated at least 50 people in Eskom’s state capture.
To uncover the extent of corruption, Mr Blom recommended that the inquiry initiate an amnesty to encourage individuals to blow the whistle on instances of corruption. He based this call on being tipped off to greater depths of corruption in Eskom and he said that people would always be fearful of either losing their job or facing criminal prosecution for not speaking out about corruption earlier.
In December 2007, the Medium Term Coal Procurement (MTCP) mandate expired and it emerged shortly after that Eskom spent billions of rands on coal stockpiles which were dropped. There was an argument between Eskom Generation and Eskom Finance whether the MTCP should be renewed, which contributed to the onset of load shedding.
The Coal Crisis Committee (CCC) started off amateurish at best, and he was removed from the Committee due to his criticism of the Committee. Optimum Coal Holdings was sold via BEE for higher prices. In 2008, Medupi quotes were released, amounting to R32 billion, and there were limited tenders for various reasons. At the end of December 2008, the Medupi tender had doubled more than three times the initial R32 billion. It was now R92 billion, and he has no doubt that the tender was rigged and included Chancellor House via Hitachi.
The Areva contract was cancelled in 2009 after the ANC conference in Polokwane. Members of President Zuma’s council sold uranium reserves at $2 billion. In 2010 Eskom made a commitment to keep the lights on at all costs due to the World Cup that same year. Maintenance was stopped to ensure lights were kept on. The maintenance budget however went missing which amounted to R10 billion.
In 2014, load shedding resurfaced and diesel prices increased. The MTCP mandate had expired and the Guptas emerged as the third generation of coal beneficiators through Tegeta.
In 2017, no mention was made by Eskom of its missing R3 billion in irregular expenditure. Profits were down and Eskom had not released the financial results. The National Energy Regulator of South Africa (NERSA) held hearings on Eskom’s application to keep coal costs secret. That information needed to be made available to the public. Other shortcomings included Eskom’s forecast being higher than National Treasury; tariff increases; distribution cost increases and so on.
The question to ask is whether NERSA is also captured.
The lack of transparency continued and there was collusion between NERSA and Eskom. There was more irregular expenditure than has been reported. Eskom was operating on derivatives of R27 billion. The total debt in Eskom is close to R430 billion and it cannot service the debt and interest at the moment.
Eskom needs to account for the missing R1 trillion which came from borrowed money. South Africans are currently paying 46c/kWh and if the rate was not so high there would be a booming economic growth rate.
The Committee needed to call Mr Anoj Singh, Mr Richard Seleke, and Mr Matshela Koko to account for their role in state capture allegations
Mr Blom urged the Committee to bring crooks to book, to approach transgressions in waves big and small, and to give amnesty to witnesses who would otherwise not come forward.
Mr Singh: Do you have any axe to grind with Eskom or anyone in government, and why were you dismissed from Eskom?
Mr Singh: Were you ever called by anyone other than the Tender Committee to favour anyone in the procurement process?
Mr Singh: Do you have evidence that NERSA is captured?
Mr Singh: Who comprised the President’s Council?
Mr Singh: Who manipulated the Medupi tender from R32 million to R92 million?
Mr Blom: I was on a two year contract with Eskom, however the Finance Director had requested to extend my contract by 10 years. I have no axe to grind. There was a meeting at President Zuma’s house with his team of fixers before he became President of the South Africa on how the team of fixers would expose and fight corruption. Someone at the meeting indicated how they would “want to jump onto the gravy train” at Eskom. I was very shocked by this term because I was introduced to this group to fix corruption, some of whom were highly qualified people including professors, doctors, and lawyers. I did not take notes of the meeting because it did not last long because I was disgusted. My mission was to fix up Eskom, not to mess it up further. I took my leave, and as I was driving away, my cell phone rang and I was told that “these are such senior people, how dare you insult them?”, I said to the person who organised the meeting that my parents told me that I do not have to tolerate scum. And I have never had an engagement with them since that day.
Mr Singh: Do you have names of these individuals?
Mr Blom: I only know the name of the coordinator of the meeting who was the former Johannesburg Stock Exchange (JSE) chairman, Mr Norman Lowenthal.
Mr Blom: The person on the President’s Council that was allegedly involved with mining was Mr Sam Jonah.
Mr Blom: The price increase of Medupi from R32 billion to R92 billion was orchestrated by Eskom. We have subsequently gone over 100 000 documents in our possession that we believe can build a strong case.
Mr Blom: It breaks my heart to make assertions about NERSA, but the fact of the matter is that they agreed that we were correct to ask for transparency. Then on 4 September we got the Multi Year Price Determination (MYPD) document which was redacted. I said to them that this was not in accordance with the decision of the court case at which I had testified. They told me that they took the decision for commercial reasons to block out sensitive information and said that they were blocking out such information due to an intra meeting at which no minutes were taken.
Mr Blom: The documentation on the R4 billion derivatives is available and would be provided.
Mr Swart: It would helpful to provide the Committee with a lengthy document with annexures of the evidence Mr Blom had.
Mr Swart: How was it possible for 400 000 tons of coal to disappear, and to what degree did you cooperate with the investigation into the disappearing coal as well as with Parliament? The Committee needed more information.
Mr Swart: I am concerned about giving amnesty. How would the Committee decide to whom to give amnesty?
Mr Swart: Can you give us more information where the financial model should be going?
Mr Blom: Some of the emails are in the file and will be made available to the Committee.
Mr Blom: Eskom paid for the coal and wrote it off because they could not find it. This is a question best suited for Mr Dames because the disappearance of coal happened during his tenure as CEO.
Mr Blom: I was never approached by any of the investigation units to testify or present my information. I did however make my information available to NERSA as the regulator but they never used it
Mr Blom: I am proposing amnesty because that is when everything will be uncovered without fear of prosecution.
Mr Blom: Eskom is not financially sustainable without a government guarantee. No one wants to invest in Eskom anymore, and the Public Investment Corporation (PIC) will be withdrawing from Eskom.
Dr Luyenge: Were there other corrupt activities taking place at Eskom before 2000?
Dr Luyenge: To where was the money lost at Eskom going? How best can the Committee know if the individuals involved were local or foreign actors, and how does this affect the poor masses of South Africa?
Mr Blom: If the poor were benefiting from the corruption then they would no longer be poor. The cost to the economy is between 2 to 4% in growth. Some of the large monies are going offshore, and there were still millions going into local corrupt practices, as well as in tender corruption. Eskom admitted that 2 800 people lost their jobs annually at Eskom.
Mr Blom: I am not very keen on amnesty as well but this way corruption will be exposed. Currently there is no incentive to come forward. Amnesty will ensure that the Committee is winning half the battle.
Dr Luyenge: Does that include price fixing by the service providers of Eskom?
Mr Blom: Yes, certainly. The pricing structure affected everyone.
Mr Blom: Eskom’s debt had gone roughly from R14 billion in 2005 to R480 billion, of which R350 billion was guaranteed by the government. Eskom has borrowed R480 billion more than what they had in 2005. The estimate of debt in 2005 was R93 billion. The question was why has Eskom raised R480 billion to pay a R93 billion debt? The extent of the inefficiency is mind boggling. Why would you spend 14 times more than what you need, at inflated prices?
Ms Mazzone: The scale of corruption and amounts of money are huge. We have become desensitized from talking of millions because we are used to talking of billions.
Ms Mazzone: Did you report the corruption you uncovered and then the authorities failed to take it forward?
Ms Mazzone: Was Minister Hogan aware of what was coming and was that why she was fired, and would Minister Gigaba have known about this?
Mr Blom: I did my initial report and found that Eskom was buying far more coal than was needed, I reported it. I was not aware that it was done under the MTCP mandate. I had just been employed at Eskom.
Mr Blom: I did not know whom to go to after meeting the fixer team, since Mr Zuma had arranged the team after going public that his mission was to clean up corruption. After the meeting with the fixer team, I had midnight visits from people trying to break into my house and that was reported to the police. My security watchman was ravaged through that encounter in the middle of the night and left my employment because he did not think I was paying him enough for the risk he endured.
Mr Blom: When I was invited to attend an international speaker forum after I blew the corruption internally at Eskom, I received a letter of demand from the legal advisor of the previous witness (Mr Dames) telling me to shut up. I was not to speak and address the conference about the inadequacies in Eskom. Everything was documented and I can make copies of that for the Committee.
Mr Blom: The organised crime unit for which a forensic report was done but I was not given the report. My superior as a contractor to Eskom was aware of my report, and I have copies of the email communication which I have made available to the evidence leader.
Mr Gungubele: This kind of presentation is scary and one cannot be sure if one is dreaming that someone had the kind of facts you are presenting. The Committee needs a way forward with regard to a process that helps to verify and affirm facts as well as all the email communications sent and received and what action was taken after reporting the corruption to the relevant authorities. I propose that the Committee’s technical team finds a way to proceed and that everything reaches a conclusive phase.
Mr Tseli: What are the normal tender processes with regard to the coal procurement mandate?
Mr Blom: The MTCP mandate came as a result of Eskom spending a lot of money on the new build at the Majuba plant. After six years Eskom had still not found a long term supplier for Majuba’s coal.
Mr Tseli: In essence, everything was done according to the MTCP mandate but not according to the PFMA.
Mr Tseli: Who was part of the Coal Crisis Committee?
Mr Blom: Some were power station managers, and it was chaired by Mr Keeran Maharaj. The Committee consisted of roughly 30 people. I was told that I had to withdraw given that I was from the finance side of Eskom, and I was critical of what I said were the amateur methods in sourcing coal. I could understand that from a political point of view they did not want someone from another department meddling in the coal procurement department.
Ms Nobanda: Can you forward the names of the fixer team? I am very interested in that.
Mr Blom: I believe that those people are very identifiable, but I was not there long to get their names or business cards. There were six eminent people such as doctors and professors and I can make it available to the Chairperson after the meeting.
Mr Shivambu: What happened at the fixer meeting when you met Mr Jacob Zuma?
Mr Blom: We had a dinner meeting. We were supposed to meet at 5pm. We were held in abeyance and told it was no longer a dinner meeting and that we need to go to Mr Zuma’s house in Forest Town, and we were told that we were part of a queue of people waiting to be seen. We signed the police register since there were police guarding the house. We eventually got to see Mr Zuma between 10 to 11pm after queuing for many hours. At that meeting I handed over what I perceived were irregularities in the coal procurement. Mr Zuma categorically said he would look at this matter and put the document on the side board in his house. And I thought to myself when I left that it was the last of that document, but obviously it was not.
Mr Shivambu: And then what happened? When you say “we”, who were you with?
Mr Blom: I was with Mr Norman Lowenthal and his son.
Mr Shivambu: After you met with him, you were informed that the fixer team was ready to meet with you?
Mr Blom: I was informed after the meeting that the fixer team was ready to meet with me, and then I was invited to a meeting in Midrand.
Mr Shivambu: Was the fixer team as a result of the meeting with Mr Zuma?
Mr Blom: Yes.
Mr Shivambu: So instead of the fixer team saying that they want to fight corruption, they wanted to eat with you?
Mr Blom: Yes, they wanted me to help them to eat in Eskom because I had so much experience in Eskom.
Mr Shivambu: Who are the members of the President Council?
Mr Blom: The document with the names of the members will be submitted.
Mr Shivambu: Is there concrete evidence on NERSA that the Committee could make a follow up on?
Mr Blom: I have correspondence that is less than a month old that makes me very concerned about NERSA.
Mr Shivambu: What is the context of boosting balance sheets?
Mr Blom: Bankers always ask for collateral before a loan is awarded. The asset value of Eskom was around R200 billion. They upped it to the extent of R700 billion which was fictitious, and they got away with borrowing R480 billion. Therefore Eskom used the assets as collateral for getting loans. Borrowings went from R14 billion to R400 billion, and then R60 billion and R23 billion worth of government assets in Vodacom and one of the Telkom companies were sold and this was borrowed to Eskom. Since Eskom cannot pay the loan back, the money was turned into equity.
Mr Shivambu: What was the R60 billion for?
Mr Blom: It was a loan from government to Eskom, and it was converted into equity when Eskom could not pay it back.
Mr Shivambu: What is the legal basis for your proposal that we must grant amnesty to people who are corrupt?
Mr Blom: That is perhaps the weakest part of my armour, and it is not something that I would contemplate in the normal course of events. I have been tipped off to far more corruption than we have uncovered, and the only way to get on top of this corruption is to grant amnesty and protection to people because they are incriminated themselves and would stand the chance of being fired if not given amnesty or whistle blower protection
Mr Shivambu: Thanks Chairperson, I will not agree later on when we sum up our discussions that we must grant amnesty to criminals who are stealing from SOEs. It will not be sustainable and will not send the correct message that we are letting people go.
Mr N Kwankwa (UDM): The assertion that NERSA is involved in rent seeking and corruption sends chills down my spine. In what way was the Coal Crisis Committee amateurish?
Mr Kwankwa: Eskom breached the PFMA by buying coal on the open market when there are more cost effective ways of buying coal. What do you mean by this, and what are the more cost effective ways?
Mr Kwankwa: Do you know the financial value of the 400 000 tons of coal that was written off, and who benefitted from those write offs?
Mr Kwankwa: Are the kickbacks from labour brokers fact or suspicion? What sort of kickback, what amount, and who benefitted?
Mr Kwankwa: Was it a neat comparison to compare Eskom now to pre 1994 when it was only supplying electricity to a small sector of the community as opposed to the demand that it had later on when it had to supply to everyone in South Africa?
Mr Kwankwa: Are you saying the manner in which the procurement process was hijacked was the problem or how it was used? I do not get how you included it in the problem statement about Eskom.
Mr Blom: Just to correct the Member, my scenario was before 2000 and not before 1994. I am not trying to score political points. The governance of Eskom changed in 2000 with the legislation. Prior to that there was no Eskom board. It was an electricity council which was made up of electricity users. The large electricity users were guaranteed a seat on that council. There were also representatives of the public on that council. So instead of being a politically appointed board as we currently see with Eskom, that was a representative board under the Electricity Council. And I don’t think it had anything to do with race, but more to do with politics where the board was captured by political means. The rationale behind the Electricity Council was quite clear that these were the people paying for this electricity and if it was high they would be the first ones to complain about it.
Mr Blom: Unfortunately there were many people who were greedy under the guise of BEE and started excessively milking the cow. People manipulated the rules and regulations of BEE and started doing nefarious ventures to screw the system.
Mr Blom: Khum-BIE Labour Brokers got into a dispute, and that matter was before the courts. There were quite a lot of kickbacks, and this became the norm at Eskom. This Committee needs to put a task team together to look at the culture of kickbacks. Perhaps they were there before that, but they are still there to this day and one cannot operate with a kickback culture because it does not make for transparent pricing.
Mr Blom: The 400 000 tons of coal was at least R40 million if not more. 400 000 tons was roughly the size of seven rugby fields, and at least tree top high. It was not something that you can miss easily.
Mr Blom: The previous witness had boasted about using export coal in power stations. That was amateurish, because you cannot use export coal in power stations. The boiler would melt. Buying export coal was absolute nonsense.
Mr Kwankwa: You have clouded the issue when you combined your pre 2000 history with the 100 year period in which Eskom had never needed a government bailout.
The Chairperson thanked Mr Blom for availing himself and said he needs to submit all the information that Committee members had requested.
The meeting was adjourned.