You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

Eskom graft probe widens into contracts with global partners

Multi-million rand contacts that have escalated into the billions laid bare.
One agreement cost the utility more than 60 times the original fee. Image: Waldo Swiegers, Bloomberg

Eskom contracts with five international companies will be scrutinised by South African state investigators as part of a widening probe into graft at the debt-laden state-owned utility.

The probe will review agreements with North American engineering services firms WSP Global Inc and Black & Veatch Corp, as well as agreements with Alstom SA of France, Switzerland’s ABB, and Italian firm Tenova SpA, Eskom said. Documents submitted by Eskom to the South African parliament’s Standing Committee on Public Accounts detailed the contracts. The group asked Eskom last month for the information.

The contracts were all repeatedly modified, with the value increasing above their initial approved cost. WSP’s agreement – signed by a company later bought by the Canadian firm – cost Eskom more than 60 times the original fee. Black & Veatch’s is more than 130 times the initial estimate, according to Eskom.

“There is an audit going on,” said Sikonathi Mantshantsha, Eskom’s spokesman. “All of them have been handed to the Special Investigating Unit”, as well as a number of others.

Poor governance

The documents filed with parliament’s financial watchdog lay bare the lack of regard for procedure or good governance by Eskom’s management over the past 15 years, during which the company racked up $28 billion of debt and is now seen as among the biggest threats to South Africa’s economy. The company is at the centre of an ongoing inquiry into so-called state capture under former president Jacob Zuma, meaning the use of government-owned companies to steal money. Zuma denies wrongdoing.

South African authorities have been investigating contracts between state enterprises and international companies for years. German software giant SAP SE agreed to hand back about $11 million in improper payments in 2018 and is being investigated by US authorities. KPMG LLP and McKinsey & Co were also scrutinised, while ABB said it is being probed for suspect payments.

The Eskom documents detail numerous contract overruns and billions of rand of penalties incurred because of its failure to adhere to contract timelines. The company’s inability to provide adequate plant maintenance has resulted in regular power cuts.

Among the contracts detailed by Eskom are:

  • A 2007 contract agreed with Alstom for R13.4 billion ($805 million) that then rose to R17.6 billion.
  • A 2011 agreement with South African construction firm Stefanutti Stocks, which ballooned from R1.63 billion to R13.36 billion.
  • A 2015 accord with ABB that was initially approved at R2.21 billion yet is now costing R3.1 billion.
  • A R962.4 million contract agreed with Tenova in 2010 that is now projected to cost R1.9 billion.

A five-year, R100 million contract with WSP’s Parsons Brinckerhoff Africa was approved by Eskom on February 26, 2006, according to the documents. The contract is yet to be completed and is now projected to cost R6.22 billion. PB Africa was bought by WSP in 2014.

Isabelle Adjahi, a spokeswoman for WSP, referred all queries to Eskom, which said the contract related to engineering and project-management work at its Medupi power station, which is years behind schedule.

A 2005 contract with Kansas-based Black & Veatch was initially valued at R114 million. As of December 2017, it was set to cost R15 billion.

“We were selected by Eskom in an open and transparent process to provide engineering, project-management and construction management support services for the Kusile power station,” Black & Veatch said in a response to queries. “The initial project award was extended and the scope significantly increased.”

The company said it only performed client-approved work and its “work and billing practices have undergone scrutiny at the client and government level”.

Alstom said it sold the relevant business to General Electric in 2015.

Stefanutti said the contract increased in scope and duration and the company has ended up spending more than it has been paid by Eskom.

Tenova said it’s aware of the probe and audit, in which payments made by it were highlighted as being a “possible source of concern”. The company has since appointed its own legal and forensic firms to look into the contract. It maintains that the cost increases were legitimate.

‘Self-reported’

ABB “self-reported to the US Securities & Exchange Commission and the Department of Justice, to various authorities in South Africa and other countries potential suspect payments and other compliance concerns in connection with some of the company’s dealings with Eskom and related persons,” the company said. “ABB made it public that the company believes that there may be an unfavorable outcome in one or more of these matters.”

Medupi and Kusile will be two of the world’s biggest coal-fired power plants when completed, producing about 4 800 megawatts each. They have both been significantly delayed and are running tens of billions of rand over budget.

Eskom also detailed R6.94 billion it has either recovered or is attempting to recover as a result of fraudulent contracts. The company has also paid R8.9 billion in penalties because its plants under construction are behind schedule.

© 2020 Bloomberg

 

COMMENTS   4

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

what do you expect their auditors are gupthas

The scope will widen…because why? Is the local probe or the most publicly known concluded?
Did I miss the trial and prosecutions? How many were jailed?

Maybe they should finish one thing or pick winnable fights before posturing off into more go-nowhere investigations.

The first 2 thoughts that spring to mind when reading about this kind of feeding frenzy are –
(i) Big name private sector concerns, who generally hold themselves out as paragons of corporate governance and good ethical behaviour, are inevitably at the core of the problem.
(ii) If all the energy and creativity that goes into the scheming and wheeling and dealing (from both public and private sector players) was rather directed at getting the job done, then every one of these BIG projects would come in under cost, within time and at better than hoped for quality.

Then there is the very disturbing fact that SO many people see what is happening and they either try to worm their way into the periphery of the action or choose to turn their heads and look the other way.

Well yes and no. I can sort of understand how these over runs happen as I am involved in a small contract with Eskom. Due to their (Eskom) incompetence, technical inability and inexperience it looks like there will be an additional real cost of about 70% of the original contract value. It is partly high as it is an “extra” so the contractor will add a 15% or 20% mark up to his cost rather than maybe his usual 5% to 10%. Now we have proposed alternatives that will bring the “extra” down to maybe 15% but the Eskom personnel have no experience, technical ability or even courage to consider these. They are happy to carry on spending, even now, as long as it doesn’t interrupt their lunch time and knock off time.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / PODCASTS SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles: Advanced Search
Click a Company: