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State of Capture is nonsense – Eskom

But the briefing left more questions than answers.

Eskom came out swinging for its embattled CEO, Brian Molefe, on Friday following allegations made in the State of Capture report released by the Public Protector last week. 

“Regarding the continued innuendo that Eskom has been giving special favours to Tegeta Exploration and Resources, the Eskom Board stands firm by the processes undertaken by the company to conclude extensions of its coal supply agreements with its suppliers. We are satisfied that due process had been followed and we can be proud of the savings achieved by the executive team to date,” said Eskom Chair, Dr Baldwin Ngubane.  

Ngubane was joined on the dais by Dr Pat Naidoo, the lead independent non-executive director of the Eskom board, CFO Anoj Singh, and company secretary, Suzanne Daniels. Brian Molefe sat in the audience but rose to address specific questions where necessary. 

Naidoo made a presentation which addressed the issues that had been raised around the Tegeta prepayment and contracts it had received to supply Majuba, Hendrina, Arnot and Komati power stations. Naidoo stated categorically that all contracts were awarded in line with Eskom’s procurement policies, and where conflicts of interest existed between board members and related parties, the conflicts were disclosed and dealt with.   

While presenting Eskom’s side of the story – much of which we can only take at face value as there is no tangible way of verifying – Naidoo repeatedly said they were here to present the facts so they could get on with running the business. 

The irony is that this briefing only came about because of a damning report by the Public Protector. So where has Naidoo been hiding for the last five months? Where was Ngubane, as chair of the board, when all of these accusations began swirling in early June? Where was Molefe when the highly incriminating, almost comical, interview with Koko on Carte Blanche aired on June 12? (Molefe only responded to the issue almost a month later at the group’s annual results presentation when asked by Moneyweb.) 

None of the board has intervened until now to address issues that have been in the public domain for months, and which have rightly or wrongly affected the reputation of the utility and the way it goes about conducting its business. 

But back to the issues. Despite being pressed multiple times on the purpose of the prepayment to Tegeta, there were no satisfactory answers. “It was for coal,” was the standard response. 

The need for financial assistance implies the supplier would have a problem supplying the coal Eskom sought in the time frame they required – otherwise, why request it? 

Eskom describes numerous examples in its press release that demonstrated this is a common practice for the utility to undertake. 

Some examples include: “During the 2008 emergency, Eskom Board approved advance payments to the value of R400 million to enable suppliers to undertake projects needed to supply coal.” (We added the emphasis). 

And: “Furthermore, a prepayment in the form of a loan was provided to Liketh in 2008 to buy equipment to process coal from the Kleinkopje Pit 5 West.” 

Also: “Eskom has also entered into loan agreements to assist Rand Mines for capital expenditure.” 

As you can see from the above, there was a specific purpose for the prepayments. But when pressed on the issue, no-one from Eskom could explain what the money loaned to Tegeta was actually used for. 

The other gaping hole in their narrative involves Koko (Eskom’s Head of Generation). If prepayment was such a common practice, why did he deny any transfer of money to Tegeta in his interview on Carte Blanche? He could have just said Eskom needed the coal, as soon as possible, and this was standard practice. The silence from the assembled executives and board members on this point was deafening on Friday. 

It has since come to light by amaBhungane that the prepayment made to Tegeta was approved in a matter of hours by the Eskom board just two days before the company had to pay R2.15 billion to acquire Optimum. The amount of the loan extended corresponds neatly with the amount of money Tegeta was short to meet the purchase price of Optimum. 

The circumstances leading to the sale of Optimum by Glencore are also highly disputed. According to the Public Protectors’ report, Eskom and Glencore had made good progress in resolving the issue of the price Optimum received for the coal it supplied to the Hendrina power station. 

As far back as July 2013, Optimum had written to Eskom invoking the “Hardship clause” in its contract, stating that “the difference between the cost to produce coal and the selling price to Eskom is approximately R166.40 [per tonne]” – State of Capture (5.158 b. pg 137). 

This began a process of negotiation and evaluation by the two parties (described in the report) which included Eskom agreeing to a new price based on the fact Eskom and its advisers had extensively audited Optimum’s costs (5. 169 of the report). 

The process went so far down the road that Eskom’s Executive-Procurement Committee approved a new contract on March 25 2015, and advanced it to the Eskom board for final approval.

Concurrently, Brian Molefe was appointed acting CEO of Eskom on April 17 2015. 

The full Eskom board met on April 23 2015 but declined to make a decision on the matter.  

On May 18 2015, in a meeting between Molefe and the CEO of Optimum – a month after his appointment – Molefe advised Optimum “Eskom would not be concluding any deal with OCM and would continue enforcing the existing coal supply agreement.” 

Molefe later cited the reasons for the about-turn. In a letter to Optimum on June 10, he wrote, “considering Eskom’s current financial position, which is public knowledge, we unfortunately cannot afford to reset the contract price, to that proposed by Optimum Coal Mine.” The correspondence added later that “It remains priority for Eskom, to ensure the security of the coal supply to Hendrina Power Station..”. 

At this point, Optimum had exhausted its available credit lines and was requiring R100 million per month to keep itself afloat. 

An uninformed reading of the letter would suggest Eskom could not afford to increase the price of coal, nor could it afford any interruptions in supply to Hendrina, given that the company was load-shedding at the time. 

So Moneyweb put the question to Molefe on Friday: why did he do an about turn against the recommendation of his own people? He was, of course, fully entitled to, as the executive head of the organisation to overrule recommendations of subordinates, but he declined to state the reasons for doing so. Instead, he replied by stating this was a question that should have been put to him by the Public Protector. 

What he did make clear in his presentation on Thursday, was that Glencore CEO Ivan Glasenberg had in effect, “held a gun to our head” in the negotiations between the two parties. “He threatened to close down the operations unless they received a higher price,” said Molefe. This is an accusation hotly disputed by Glencore. 

Molefe also refused to discuss the reasons for the 58 phone calls between himself and AJ Gupta at the same time as he was embarking on the u-turn with Glencore. Nor did he reply to any questions on the nature of his relationship with AJ Gupta or the broader family. But he is on the record as saying “they are nice people” and that he “has met them once or twice.” 

Eskom summarised Molefe’s conflicts of interest in the following way:

 screen-shot-2016-11-06-at-8-32-42-pm

But he is a member of the board, the same one that met and then refused to agree to a new contract with Glencore. But then again, neither are any of the Guptas officers of the government or members of cabinet. So, perhaps Eskom is missing the point. They need to investigate the relationships between the Guptas, Molefe and the Board to establish motive and whether there has been any undue influence.

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COMMENTS   14

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These criminals are not intelligent or competent at all. They have no alternative way of earning a living. They are not qualified to earn an honest income. So, it is easier to steal from the people. This describes all of the ANC.

“Now since man is naturally inclined to avoid pain – and since labor is pain in itself – it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it. When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor”. -Frederic Bastiat

The ANC is rubbish – TheSpark

The CEO cannot influence the board? I don’t buy that one.

If a CEO detects just a little bit if weakness in the board they will exploit it. this guy certainly did.

A CEO who does not or cannot influence the Board does not deserve his/her position. They are the go-between ito the Board and Executive / Snr Management (in fact for the entire company) and are the primary source of strategic development and direction. They don’t have to be on a ‘committee’ to be deemed to have influence over the Board.

Furthermore, to presume that Board members only interact at Board meetings is utter nonsense. To be effective they need to understand each other and know how to lobby and canvas support for what they believe in – this includes sessions at shebeens, etc. And to have an entire Board that has some or other link to the Gupta’s not be influenced by those sharks is totally impossible.

What a member might or might not declare a direct / pecuniary interest in at a meeting (more often than not purely for the record) does not reflect what has been discussed and agreed in advance of such a meeting. Eskom, et al might be fools, that does not mean everyone else is…

For someone with Brian Molefe’s intellect, he leaves a lot to be desired.

I would be happy if he could answer just one question honestly for me. The question is:- Brian Molefe, are you stoned or just plain stupid?

That a trick question. I refuse to reply ! !

Let them challenge the PP report in court.

Responses are censored again.

Dear Mr Molefe,

I think the problem is that you think you think you are too important and too valuable, which gave you the seemingly idea that you are above the law. This was probably not intentionally, it just happened. You were offered these sweet deals that benefited you personally and your foundations simply crumbled (you were blinded by the lucrative deals). Also for a similar reason I think this why you are pushing for nuclear. The logic is not rational, but this is because you (and others) are likely to benefit personally. So you will push this agenda at all cost as this is based on your view that the public are fools. Wake-up call mr Molefe!

all pathetic, rotten to the core

Mr No 1 also said that NKandla concerns are ‘rubbish’. The same person said that state capture is rubbish and so many of the other evils. The same person also said that the ANC will rule until Jesus returns.

So now mr Molefe you are coming and repeating some of the same phrases than your boss; unfortunately not much credibility.

Secondly you were also boasting that Eskom has stabilised supply of electricity, claimed that load shedding was something of the past, etc. credit to your turn-around plan. However, you’ve fooled the public and simply failed to show the real reason, namely sharp drop in demand.

So your credibility is being eroded. Please tell us the truth as it will come out!

Spot on! The Eskom chairman and Molefe (plus his praise singers) all claim it is Molefe’s turnaround strategy that has taken Eskom to new heights (which as you’ve said is bull). Yet the chairman subsequently states that Molefe does not influence the Board as he is on none of the committees. Can’t be both, can it?

PLEASE though don’t refer to Zuma as No 1 – it’s either No 0 or No 783.

End of comments.

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