How a tender ‘error’ swung two Eskom contracts worth R341m to the more expensive bidder

The losing bidder, Instrument Transformer Technologies, faces liquidation as a result.
If the company is liquidated, SA will be left with just one local manufacturer of electrical transformers. Image: Bloomberg

One of just two local manufacturers of electrical transformers says it faces liquidation after a procurement team at Eskom handed two contracts worth R341 million to the more expensive bidder, which it says should have rightfully have gone to it.

That much is not in dispute.

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Eskom’s own lawyers have admitted that three contracts for the supply of electrical transformers were awarded to Actom, even though it was more expensive on two of the bids.

How did that happen?

Eskom’s lawyers, Cheadle Thompson & Haysom, in a letter to Instrument Transformer Technologies (ITT) dated February 10, 2021, explain that the record of the tender compiled by Eskom’s procurement team made the most elementary of ‘errors’: the prices recorded for ITT included Vat, but excluded them for Actom.

That was a R341 million (exclusive of Vat) error in favour of Actom on two of the contracts. It was enough to swing two of the contracts from the cheapest to the more expensive bidder.

No need to reconsider 

“Our client [Eskom] does need to reconsider the tenders, and it is the process that is paramount, not the anticipated result. In the circumstances, we ask that your client reconsiders the proposal made to ITT, in particular the proposal that the orders of invalidity be suspended while our client reconsiders the tenders and that your client continues to perform its obligations during that interregnum,” wrote Eskom’s lawyers to both the winning and losing bidders.

The wrongdoing has been admitted, but it seems no serious effort has been made to fix it.

The contracts incorrectly awarded to Actom have not been suspended.

ITT CEO Avi Bhatt believes the reason for this appears to be to let the clock run down on the contracts so that, by the time the matter gets to court, the judges will be presented with a fait accompli.

Moneyweb reached out to Eskom CEO Andre de Ruyter for comment but had not received a reply by the time of going to publication.

Background

Some background here is needed to understand the sequence of events: When it comes to supplying heavy-duty instrument transformers that keep the country’s lights on, there are only two home-grown manufacturers: ITT and Actom.

Both are majority BEE-owned. Actom counts Old Mutual, Actis, Kagiso Tiso Trust and FirstRand among its shareholders.

ITT was purchased in 2017 by Bhatt and his business partner Brian van Wyk.

Both ITT and Actom count Eskom as a major client. The electricity utility accounts for 80% of ITT’s revenue, the balance coming from transformers and equipment supplied to mines, farms, renewable energy producers and others.

Being one of only two original equipment manufacturer (OEM) suppliers in the country, ITT fully expected to count on Eskom tenders to keep it going, provided these tenders met Eskom’s technical, financial and other standards.

It’s not just Eskom that has an interest in supporting local manufacturers of instrument transformers.

Both the Department of Trade, Industry and Competition (dtic) and National Treasury require this type of heavy-duty electrical transformer to have 90% local content, which means in effect that they must be produced in SA.

Only ITT and Actom are capable of meeting this local content standard. Eskom itself required successful tenderers for this type of product to meet the 90% local content requirement or face disqualification.

Two-horse race

So when Eskom put out a request for three quotes (Corp 4 924, 4 925 and 4 952) for instrument transformers in October 2019, this was essentially a two-horse race between Actom and ITT. The combined value of these three contracts came in at about R500 million.

Tenders were to be awarded points on the 90/10 principle: pricing (inclusive of Vat) earning the most points on values above R50 million and, all else being equal, the company with the best black empowerment score winning the tender.

ITT submitted a tender to Eskom, and also provided pricing to various black-owned entities.

ITT was immediately disqualified by Eskom’s procurement team, ostensibly because it provided pricing to multiple suppliers, who in turn submitted their own quotes on the same tenders.

Bhatt explains as an OEM, it is normal business practice to supply prices to companies that may be competing against you for the same tenders. “In any event, this is allowed under Eskom tender rules provided we don’t have a shareholding or JV agreement with the competitor.”

Under review

When ITT was notified that it had been disqualified for sharing information with other suppliers, it immediately informed Eskom that it would apply for a legal review of the tender process.

ITT filed a notice of motion in the South Gauteng High Court citing the Eskom bid evaluation committee and procurement team members Yurisha Pillay Reddy and Lerato Morife as respondents.

Eskom’s lawyers admitted that ITT was prejudiced and was erroneously disqualified, and was the cheaper bid on two tenders (Corp 4 924 and 4 925).

“You don’t make an error of this magnitude where the loser is irregularly deprived of contracts to the value of R341 million,” says Bhatt.

Further oddity

A further oddity in the case: Eskom’s lawyers offered to have the matter settled by agreeing to evaluate the ITT commercial offer, but that settlement was subject to the approval of Actom.

Bhatt says it is extraordinary to seek the approval of the company that is the recipient of irregularly awarded contracts.

“We’re not saying that Actom acted unlawfully, but we are saying that they should not be consulted in rectifying the harm that has been done to us in this case. Why is Eskom asking Actom’s approval when it comes to seeking a settlement with ITT? Eskom has already admitted the prices submitted by ITT were lower and based on Eskom’s own 90/10 rule contracts should have been awarded to ITT. There’s nothing more to discuss.”

Yet, when ITT asked for a full record of the tender process, Eskom supplied some – but not all of it.

Actom itself has asked for a full record to establish what went on in the award of the tenders.

Why the delay?

“To let the clock run down, so the contracts are completed before justice can run its course,” says Bhatt.

“We are facing liquidation, which in itself should be a serious concern for Eskom, [the dtic] and National Treasury. That would leave just one manufacturer of instrument transformers in the country.”

Moneyweb reached out to Eskom with emailed questions on the case, but had not received a reply at the time of publication, despite follow-up. The story will be updated should we receive a reply.

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Yet another Eskam scam, now called an “error”. Note also that bribes to Eskam management employees are called “loans”. The ANC/Eskam have evolved a new corruption vocabulary in the hope of misleading the public. 16% tariff increases are called “cost reflective tariffs”, not extortion, etc.

It very common knowledge that it how things are or were run at Eskom and SAA. These things are brought up at family/friend dinners/lunches.

I heard once that SAA was paying three times international prices for its spares.

Also heard two weeks ago about one at Eskom, a R20K to R40K valve was forced to be replaced by one of R840k on a Sunday and it had to be on a Sunday because there were fewer parties required to approve the break down fix. The one Eskom employee that did did question the deal is today on the street.

The ANC has indelibly gone down in history as cANCer/ corruption / the error.

This type of graft will only stop if culprits are swiftly publicly executed. A Tax boycott long overdue !

More likely an error in the Compliance Department at ESKAM. Or rather a major flaw in the skills and competence area.
But who cares anyway. There are no consequences. This is Africa.

Perhaps ask Daily Maverick to follow the money ?

PLEASE Ciaran — Just tell me that there is one contract from Eskom that was not irregular !!!

Hilarious…. spoon fed BEE (too lazy to market north of the border) squeals when other BEE gets the last remaining “cookie” from the jar

Interesting that this “error” has only come to light now…just when we have a CEO who can actually do the job and was not employed using BEE credentials. Perhaps there is hope at last.
Racist BEE policies, tenderpreneurship and jobs for votes must all be scrapped if SA has any chance of regaining its reputation as a decent democratic country with a viable economy.
How sad Mandela would be to see how low we have sunk ….how abused the taxpayer has become and how rotten his party has turned out to be.

The people of South Africa deserve and want to see ANC criminals and money launderers go to jail. When will this happen? The ANC has destroyed the social fabric of this country. Until high level ANC politicians are sent to jail, this is nothing more than a cover up!

Ramaphosa is shocked ……..or not?

Can’t be shocked… loadshedding.

Mistakes happen. Now that the mistake has been identified and seemingly by Eskom’s own admission the bid was wrongly allocated to the most expensive bidder – why are they refusing to rectify it? Who is blocking this?

JIRRE…… and NERSA has the audacity to increase electricity prices.

NERSA… get your house in order!!!… the consumer cannot be made to bear ESKOMs inefficiencies…. the consumer cannot be made responsible for the ANCs mess…

ESKOM needs to be punished…. but that wont happen because the country is held to ransom…. for this necessary good called electricity.

“Error” in this context means a series of brain farts by a group of very incompetent people at Eskom. Holy crap. This is the company that the whole country is dependent on for growth ? One of the main reasons I limit investment in SA and focus of foreign investments only.

The F’ing STING ROT continues!

“Cheadle Thompson & Haysom” nice government work for old ANC chums.

Another Eskom scam. Who makes such a stupid mistake of this scale!Was the running of things at Eskom not supposed to be better with the ‘new’ CEO? Looks like it is all still the same.

End of comments.

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