ATC180530: Report of the Portfolio Committee on Public Enterprises on the oversight visit to the Eskom Megawatt Park, dated 30 May 2018
Public Enterprises
Report of the Portfolio Committee on Public Enterprises on the oversight visit to the Eskom Megawatt Park, dated 30 May 2018
1. Introduction
The Portfolio Committee on Public Enterprises (the Committee) undertook an oversight visit to Eskom Megawatt Park on 1 February 2018. The main purpose of the visit was to formally meet and interact with the newly appointed board of Eskom, and to pledge support and develop a working relationship with the new board.
1.1 Delegation
The Committee delegation included the following members: Ms L Mnganga-Gcabashe (Chairperson of the Committee, ANC), Mr M Tseli (ANC), Ms G Nobanda (ANC), Ms Z Rantho (ANC), Mr M Gungubele (ANC), Ms N Mazzone (DA), Mr E Marais (DA), Mr M Dlamini (EFF) (accompanied by Mr F Shivambu (EFF)), Mr S Swart (ACDP). The delegation was accompanied by the following Parliamentary officials: Mr D Mocumi (Committee Secretary) and Ms L Bramwell (Researcher).
The Eskom delegation was led by the Chairperson of the Board, Mr Jabu Mabuza, and included the following persons: Mr P Hadebe (Interim Group Chief Executive Officer), Mr C Cassim (Acting Group Chief Executive Officer), Ms N Magubane (board member), Ms J Modisane (board member), Mr B Makhubela (board member), Mr T Mongalo (board member), Ms P Molokwane (board member), Ms P Molokwane (board member), Mr G Sebulela (board member), Mr R Crompton (board member) and Mr D Nkadimeng (Department of Public Enterprises).
1.2 Background
Eskom has been experiencing governance challenges and there were allegations of maladministration, corruption and undue influence from the Gupta family and their associates. The Portfolio Committee on Public Enterprises initiated an inquiry into corporate governance, procurement and financial sustainability of Eskom. The previous board and executives of Eskom were highly implicated and had many allegations levelled against them. The government had recently appointed a new board and an interim Group Chief Executive Officer to deal with the governance challenges and act against those who had been implicated in corruption allegations at Eskom. The Committee took a resolution to visit the new board as part of building a relationship and assuring the board of the support of the Committee.
2. Meeting with the board of Eskom
2.1 Input by the Chairperson of the Board: Mr Jabu Mabuza
The Chairperson of the Board informed the Committee that the board has prioritised liquidity and governance challenges of Eskom. The interim results of the company were delayed due to issues concerning its ability to trade as a going concern. The board was in the process of inculcating a new culture of clean governance at Eskom. He also thanked the Committee for the visit and for the commitment to support the board and also committed to be transparent and report quarterly on progress that had been made in turning around the company. The Chairperson of the Board stated that government needed to finalise the energy model going forward, as this would impact on Eskom’s business model. Eskom needed to look at the strategic position of the business in the energy sector and configure the business in order to meet the energy needs in the future for its long-term sustainability.
None of the former board members and executives had been given amnesty, and the board would pursue criminal charges against those who had been found to have committed a crime. From 31 January 2018, no employee should be part of companies doing business with Eskom.
2.2 Overview on the Performance of Eskom (Mr Phakamani Hadebe)
The interim Group Chief Executive Officer, Mr Hadebe, gave an overview of the challenges facing Eskom and gave a progress report on interventions that have been implemented by the new leadership. These were some of the key highlights of his presentation:
- Historically, Eskom had a better rating than the sovereign. The bond market was tied to the sovereign, and Eskom bonds were cheaper than those of the sovereign. Eskom had reserves of between R30 and R40 billion. The Treasury Office at Eskom was considered the best fixed investment. Three things contributed to where Eskom is now – Leadership, decisions was not taken in the best interest of the country and Eskom; corporate governance, they lost credibility; capital structure of the balance sheet. Kusile and Medupi were done on borrowing, but needed to be based on capital as well.
- The poor performance, downgrades by rating agencies and the current challenges were caused by poor leadership, lack of decisive decision making, lack of credible corporate governance, and a weak balance sheet. The weak balance sheet was caused by increases below inflation, the drop in sales and the arrears of Municipalities. He further urged the Committee to help Eskom in finding a political solution to municipal debts.
- The company received an unqualified audit opinion. The findings of the Auditor-General related to irregular expenditure and the inability of Eskom to account on the expenditure.
- The balance sheet of the company was affected by the following: Tariff increases allowed of 2.2 per cent against inflation of 6.7 per cent; declining volumes due to loss in confidence in Eskom, 2 per cent drop in revenues; and increase in arrears, which needed a political solution. Arrears increased to R12 billion from R9.5 billion with Soweto contributing R5.6 billion to these arrears.
- The board and the interim GCEO have been engaging different financial institutions and investors in order to secure bond facilities for Eskom. The investors required action against maladministration and those alleged to be involved in corruption, before they could lend the company money.
2.3. Action taken against Executives implicated in Alleged Corruption
The board had taken action against all Senior Executives who had been accused of maladministration, corruption and contributing to governance decay at Eskom. The board offered most of them an option to resign or to face internal disciplinary processes. The former Chief Financial Officer, Mr Anoj Singh, opted to resign and was paid six months’ salary as per the conditions of his contract of employment. Mr Matshela Koko has refused to resign and has challenged Eskom in the Labour Court. He had been suspended and was presented with new charges. Mr Abram Masango had been suspended and allegations against him have been handed over to law enforcement agencies for investigation. Mr Edwin Mabalane, Mr Prish Govender and Ms Suzanne Daniels are still on suspension and internal processes were under way.
The former Acting Group Chief Executive Officer, Mr Sean Maritz, failed to inform the board that he signed a letter to McKinsey withdrawing a letter of demand that was previously sent to McKinsey, informing McKinsey that the board has resolved that the transaction was valid and regular and that there was no need for McKinsey to repay the money. The Chairperson of the Board read the letter Mr Maritz sent to McKinsey, which contradicted the resolution of the board. Mr Zithembe Khoza instructed him to send a letter to McKinsey and said it was urgent to regularise the transaction in order to absolve McKinsey from paying back the R1 billion.
3. Observations
The Committee made the following observations:
3.1 The Committee welcomed the swift action taken by the board and interim executives in getting rid of those who had been implicated in wrong doing and encouraged the board to continue with the good work of cleaning governance and taking action against corruption.
3.2 The Committee cautioned the board against having relationships with politicians and that it should take decisions in the interest of the company instead of impressing politicians.
3.3 There was a need to investigate executives of Eskom who were advancing their selfish interests at the expense of the company.
3.4 The Chairperson of the Board and the Interim GCEO should work closely together so that the board and the executives do not compete but complement each other.
3.5 Concerns were raised regarding two board members, one who has a case of gender discrimination against him and the other due to his close proximity to politicians.
3.6 Eskom should consider negotiating the debt that they owe to the PIC, in order to turn it into equity.
3.7 A list of all 40-year coal contracts must be renegotiated to ensure that Eskom can save costs, and a list of all suppliers of Eskom should be forwarded to the Committee.
3.8 The Eskom board should consider working on strategies on how to resolve the municipality debt. Those who can pay should pay, and those who are not capable of paying should be declared indigent.
3.9 A concern regarding nepotism and favouritism in the areas of internships and bursaries was raised, where relatives of managers received priority.
4. Recommendations
The Committee recommended that the Minister of Public Enterprises ensure that the board implements the following:
- Improve the image of the company and the communication strategy.
4.2 Review all contracts and procurement processes.
4.3 Discipline should be restored and the code of conduct be improved.
4.4 Submit a progress report on Kusile and Medupi to the Committee. Eskom
needed to look at the procurement on those two projects as costs have escalated.
4.5 Address the municipal debt issue with National Treasury.
4.6 Present to the Committee at a later stage the actions taken to address the challenges facing Eskom and how those challenges would be addressed.
4.7 Ensure that the board and executives work closer with middle management, as there was a possibility of fraud and corruption at middle management level as well.
4.8 Ensure compliance with regulations and policies.
4.9 Ensure that the procurement manager attend meetings with the Committee to answer any relevant questions.
5. Conclusion
The Committee encouraged the board to work closely with Parliament and the Executive to turn the company around.
Report to be considered.
Documents
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