We have ourselves a whistle-blower folks! A high-level Eskom executive
|Eskom CEO Jacob Maroga|
But before we dish the dirt, a bit of background on Eskom, this giant we’ve all more or less taken for granted up to now. What exactly is this organisation which infuriates South Africans, makes foreign investors nervous and has Fifa wondering what the hell it’s got itself into?
In the (dark?) old days, Eskom was a so-called creature of statute, the statute being the Eskom Act of 1987. It made a lot of money and paid no tax and no dividends. No one really minded because Eskom invested its profits in infrastructure, which meant we could turn the lights on whenever we pleased.
When the ANC came into power it took one little look at this lot and thought something like “You’re joking! Plough all that money into turbines and other shit we don’t understand when there are so many worthier causes – like government coffers and directors’ pockets”? So in 1998 it passed the Eskom Amendment Act, which made it a company with just one shareholder – the state – to which it pays both dividends and taxes. So it now provides the state with truly huge piles of money.
So yes, it really is a case of “Eskom, Government: Can you tell the difference?” Which makes it a little strange that Eskom is so keen to distance itself from the government at the moment. As in the “It wasn’t us folks, it was the government; we told them years ago that we needed to invest” routine that Eskom does whenever questions are asked. Could it be that Eskom’s directors need to keep their distance so that they can justify the latest tranche of bonuses? Because, as South Africa’s finest mind, Public Enterprises Minister Alec Erwin, said recently, bonuses can’t be withheld from senior executives who have performed their contractual obligations, just because the country is angry with them.
According to our source, the government may well have been negligent when it refused to invest in power stations, but Eskom itself is run like a circus. Had it been run even half-properly, maybe it wouldn’t be needing to impose the massive hikes which it is now seeking, in order to raise an additional R3,7bn in revenue. An issue which will be decided by supposedly independent energy regulator Nersa – a body which is funded by Eskom and therefore about as independent as ... how about the SABC? A body which will benefit from the increase almost as much as the Eskom directors, whose bonuses are of course based on increased revenue and profits.
So here it is folks – how to run a mega-corporation into the ground in seven easy steps:
Step 1: Look after number one
As we know the Eskom directors treat themselves rather well. The best-known executive committee member is CEO Jacob Maroga – you may have seen him on TV and said out loud: “Good thing this isn’t in a meritocracy mate, because if it was you’d be lucky to manage a small corner café, where your assistant would be Alec Erwin”. Then there are a few nonentities who have managed to stay out of the limelight – Brian Dames, Erica Johnston, Bongani Nqwababa and Mpho Letlape. And lastly there’s the token whitey that Jacob Maroga gets to do the awkward TV interviews, Steve Lennon. Not only do these fine business leaders seek wonderful bonuses at a time when South Africans are required to pay a whole lot more for the electricity they don’t have, but they also get security protection – gates, alarms and all sorts of gadgets installed at their homes. In fact, our source tells us that at one stage Steven Lennon needed personal security protection. Is it really possible that the Eskom big-wigs are so hated that they need all this protection at the taxpayer’s expense? Here, in a country where crime is simply a perception?
Looking after the senior staff has long been part of the Eskom culture. As far back as 1997 Eskom decided that it needed to keep its top performers happy, to retain their skills and ensure that these skills would be transferred to the less skilful. The people Eskom had in mind were all so called “E-Banders”, the 200 or so employees who are one grade below the F-Banders on the executive committee. So one Adriaan Jooste, who was head of the Consulting Unit of Eskom and who reported directly to then CEO Allen Morgan, devised a system of giving “special contracts” to a bunch of high-flyers. In a memo to Morgan dated 4 June 1997, Jooste said proudly that the special contracts would allow Eskom “to get quite creative on tax”. And altogether some 57 special contracts were signed, including one with a certain PJ (our Jacob) Maroga, then a mere E-bander, and another with fellow executive committee member – also then E-bander – Steven Lennon.
ccording to our source some R60m may have been blown on these special contracts. And based on the mess Eskom’s in now, precious little skill was retained or transferred.
The practice of offering special contracts to the chosen few would not have become public knowledge had Eskom not had a rather embarrassing court case brought against it by an employee by the name of Pierre Rubbers, who was manager of the Trader and Africa Desk of Eskom’s Transmission Group. It was Rubbers’ job to sell electricity to neighbouring countries, and if he hadn’t been so good at his job we might have some more for ourselves now. Rubbers sought a court order declaring his special contract with Eskom to be valid, and ordering that an arbiter determine the amount of his claim.
Rubbers’ case was based on the fact that, in early 1997, Jooste told him he’d been identified as a top performer entitled to a special contract, and that the executive director of the Transmission Group, Pieter Faling, would negotiate the terms of his contract. Faling and Rubbers negotiated away and made certain changes to the standard special contract, eventually coming up with quite a nice little package.
This entitled Rubbers to a bonus equivalent to 35% of the total of his basic salary, plus annual bonus, plus performance incentive bonus, plus two business class overseas trips for Rubbers and his wife every year – a provision for which Eskom would not deduct income tax on the basis that it was (disguised as) a “restraint of trade” payment.
That was not all: the contract further provided that if restraint payments ever became taxable under South African law, Eskom would pay the tax. And, of course, there was a strict confidentiality clause. Rubbers signed the contract and Faling co-signed on behalf of Eskom. And from then on the company treated the contract as valid, with Faling approving a nice end-of year overseas trip for Rubbers and his wife.
But when Rubbers tried to claim his bonus, Eskom took one look at the amount and said “no way”. In fact, Eskom asked Rubbers to tear up his special contract and sign an ordinary contract. Rubbers refused. Instead he sued Eskom, claiming some R4m in bonuses, with interest. Eskom defended the action by claiming that Faling, being neither the CEO nor the chairman, had no authority to bind Eskom. Which was strange, because nearly all of the special contracts had been signed by executive directors rather than CEO Morgan or chairman Reuel Khoza. Eskom also claimed that the contract was illegal, being in fraud of the tax man, Eskom and the people of South Africa. And Eskom claimed that, because of the foreign trips, Rubbers’ agreement was more favourable than the other special contracts. Which was also strange, because some of the special contracts provided for bonuses of up to 50% of salary.
And if Eskom was so confident of its case, why did it decide secretly to settle with Rubbers – on what terms we do not know?!
Step 2: Put your hand in the cookie jar
Until fairly recently Eskom employed its own security staff. Then BEE came along and Eskom needed to outsource the security function, to satisfy BEE requirements. So Eskom decided to sell the blocks of flats it owned in Edison Avenue, Sunninghill (Elmwood and Ashley), which had been used by its security staff. The idea was to offer the flats to the staff by way of a notice on the company notice board. Fine idea, but unfortunately some senior staff cherry-picked the flats they wanted before the notice went out, and then sold them for handsome profits. Needless to say the internal files documenting this have disappeared. The names of some of those who profited? Stand up Vuzi Ngobeni, one-time executive committee member in charge of Eskom Enterprises ... Oh, sorry, you can’t: you’re dead! Well what about you, then, Doug Dewey and ... (sorry, those names will have to come later.)
Step 3: Take in a lodger
Eskom’s head office, the butt-ugly Megawatt Park in Sunninghill, consists of four enormous Soviet-style office blocks. In 2003 Eskom decided it would be a fine idea to cram its entire staff into two of the blocks and find tenants for the other two. It appointed property company Broll to find a tenant, and, with delicious irony, it duly found the organisation which Eskom had tried very hard to diddle a few years previously, SARS.
ven odder: in negotiating the rental, SARS was represented by a man who was previously at Eskom ... and one of the 57 special contract holders, a fellow with the memorable name of Kieswetter. SARS got a very good deal – we understand, some R53 per sq metre – and a 15-year lease. Eskom got a very bad deal – it was forced to build new underground parking to accommodate SARS, and soon found that its staff couldn’t fit in the two blocks it had kept for itself. (Guess which organisation runs a frighteningly efficient tax collection service, and which runs a shambolic electricity supply service?)
Anyway, not long after entering into this great deal, Eskom felt obliged to rent three more buildings in Sunninghill to accommodate its staff. And now, having realised that it’s simply paying off someone else’s mortgage, it decided that it wants to bring its staff back to Megawatt Park. But because it can’t dislodge SARS, it needs to build another building on the campus – at a time when the construction industry is booming and building costs are high. The cost of two moves and the refurbishment of some 2000 workstations? Who knows? Our source estimates some R50m. And by the bye, Eskom also refused to pay Broll’s commission of R10m for finding the tenant. Broll promptly took Eskom to court – and won.
Step 4: Be too clever to take advice
In the early ‘eighties, Eskom established communication with the Reserve Bank on medium and long-term growth forecasts for the country, as well as other matters which might be relevant in deciding new capacity. The thinking was no doubt that the Reserve Bank knows its stuff when it comes to the economy, and regular meetings were held.
But now no such meetings take place. Is Jacob just too proud to take advice from Tito? Or can Tito not take the heat?
Step 5: Do some truly weird stuff
Remember the whole Oil for Food thing in Iraq? At one stage Eskom was quite keen on making money through power station refurbishment, so it sent two engineers to check out the possibility of doing this in Iraq. The two flew to Iraq via Jordan, and Eskom received a bill from a travel agent named Marathon – not Eskom’s contracted travel agent – for R436 000. For two flights!? Actually Eskom was paying for some other passengers too. Like Jeff Radebe, now Minister of Transport, previously Public Enterprises, and one of the Pahad brothers – either Minister in the Presidency Essop or Deputy Foreign Minister Aziz. What these guys were doing in Iraq we don’t know. Just like we don’t know why Eskom had to pay for their trip.
Step 6: When the shit hits the fan, lie!
Remember Koeberg 2006, when the Western Cape got a sneak preview of the blackouts which were to come? Alec Erwin rushed in and blamed “human instrumentality” and “loose bolts” and so on. The man may look all ears, but he certainly doesn’t listen – the problem had nothing at all to do with Koeberg. In fact the electrical load from Mpumalanga to the Cape could not be carried because of badly maintained transmission lines, which were found melted in the Karoo. Which was, of course, all part of the “the less we spend on maintenance, the higher the profits and the higher our bonuses” strategy. And, says our source, given the state of the lines throughout the country, there’ll be plenty more of this in the future.
And Eskom has been lying about the current crisis too – it has nothing to do with wet coal but rather with a lack of coal. Which is not to say that there isn’t enough coal in the country, but simply that the coal isn’t getting through to Eskom. Once again BEE produces its sting. In times gone by, Eskom either used its own collieries or it received its coal from large companies like BHP Billiton. But then it decided that it should use small BEE-compliant collieries out in Mpumalanga. And these small collieries soon realised that Eskom was no longer exercising any quality control. So they started sending rock instead of coal. Which of course stuffed up the equipment, causing so called “tube leaks” which mean that boilers had to be stopped. Executive committee member Brian Dames decided that one Rob Lines, manager in charge of primary energy, should be the fall guy for the lack of coal. Lines told Eskom that if they dismissed him he’d take them to court and the whole world would know what was going on – like, that three Eskom managers, named Noma, Jabu and Japhta, had already “been resigned” because of tender irregularities involving coal. He was suspended and now awaits a disciplinary hearing.
Ah, you say, but if that’s all that’s involved, surely the crisis can be tackled by cancelling all the deals with small-time operators and getting real coal from proper collieries? Uh... not so easy. That would require an admission that the whole process has been a fuck-up – and that’s difficult for political (and bonus) reasons. And though Brian Dames has recently secured some 35 million tons of much-needed coal, it takes time to get the stuff delivered, and even then we still won’t be out of the woods. Because the power stations themselves are in a complete mess because of lack of maintenance.
Step 7: Give jobs to the boys
The good news is that Eskom is actually building some new power stations. The first one will be Medupi in Lephalale, Limpopo, at a cost of some R78bn. In March 2006 Eskom put out tenders for boilers and turbines, with a deadline of 10 August 2006. Only two companies submitted bids, Alstom and Hitachi. Hitachi’s offer was deemed to be unacceptable on technical grounds, so on 14 June 2007 the Eskom board conditionally approved proceeding with Alstom for turbines and an Alstom and Steinmuller consortium for boilers.
As is fairly well-known by now, Eskom then changed its mind and awarded the R20bn tender for boilers to Hitachi. Some say that this was not unrelated to the fact that the ANC front company Chancellor House is Hitachi Power Africa’s 25% BEE partner, and that it stood to make some R3bn from the deal. Hitachi claims to be highly irritated by the fact that its reputation has been sullied by the suggestions of improper influence, but we suspect that it will get over it if, as expected, it also picks up the contract for the boilers at another planned power station at Emalaheni, Mpumalanga, a deal which could be worth another R20 billion.
What is less well-known, however, is that shortly after approving the initial deal with Alstom and the Alstom Steinmuller consortium, Eskom instructed its Procurement and Supply Chain department to look at the tender process and determine if it had been fair, competitive and transparent. On 25 July 2007 a report (signed by the general manager of the department, one Vule Nemukulu, but suggesting that enquiries be directed to one Barry Culligan) was sent to Eskom CEO Jacob Maroga marked “Strictly Confidential”.
The report said there were “shortcomings” in the tender process, in that there were too few responses (bidders). This is ascribed, in part, to “misunderstanding of Eskom’s intentions given numerous previous enquiries not executed”. In plain language, Eskom likes to get quotes but never accepts any of them, putting a lot of people to a lot of trouble for nothing. Another reason was “sub-optimal pricing” – Alstom was expensive.
However, said the report, there was no suggestion of any corruption or other impropriety and certainly no reason to cancel the deal. The report concluded as follows: “Concerns are significant but not material to change the outcomes. Even if Hitachi were deemed technically compliant they would not have been found to be the best commercial option.”
So Hitachi didn’t have the right product nor was its pricing any good. Yet the company got the order. Now where have we heard anything like that before? Oh yes, something to do with fighter jets and frigates.
In 1992 The Sun newspaper in the UK ran the following headline on the day of a general election in which it was predicted that Neil Kinnock’s Labour Party would topple John Major’s Conservative Party: “Will the last person to leave Britain please turn out all the lights.” In South Africa, it seems that person won’t have to.
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