Allegations, accusations and disinformation – just what Eskom doesn’t need

Advocate Wim Trengove SC earlier this year unconditionally cleared Eskom CEO Andre de Ruyter of accusations levelled against him by former Eskom non-executive director Sifiso Dabengwa (former MTN CEO).

The Eskom board adopted Trengove’s report at its meeting on July 20 and expressed its full support for De Ruyter.

The power utility released the full report on Monday (October 5), stating that it was doing so in response to disinformation “contained in some articles recently published in titles associated with the Independent Newspapers Group”.

Sequence of events

In May 2019 Eskom solicited bids for the supply of heavy fuel oil to its power stations for five years. Contracts were awarded to Sasol, Econ Oil & Energy and FFS Refineries for a budget of R14 billion.

When De Ruyter, who had recently joined Eskom as CEO, attended the Investment and Finance Committee meeting on January 10 this year, the procurement officer requested an increase in the budget from R14 billion to R18 billion.

The report states that De Ruyter called into question the “quality of information provided in the application for the increase in the budget of the heavy fuel contracts and decided to investigate the matter”.

At the board meeting on January 16, De Ruyter “envisaged” the cancellation of the fuel oil contracts amid allegations of fraud and corruption against some fuel oil suppliers. He asked Bartlett Hewu, Eskom’s interim group executive: legal and compliance, to draft a memorandum covering these issues.

Memoranda

Hewu’s memorandum, distributed to the board, recommended that fuel oil contracts should be cancelled where: there are possible collusive practices; the tender process isn’t fair, transparent and equitable; the pricing methodology is obscure; and it isn’t cost-effective. Further, the report averred that the Eskom team that evaluated the bid lacked the “requisite skills, competence and understanding” of the fuel oil market, and that the board-approved strategy of procuring fuel oil directly from the refineries was not followed.

Eskom interim chair Professor Malegapuru Makgoba circulated a round-robin resolution to the board for the cancellation of the oil contracts.

Dabengwa and Eskom non-executive director Dr Pulane Molokwane strongly objected to the proposal on the basis that the grounds for the proposed cancellation were “speculative and unproven”.

De Ruyter responded with a detailed ‘Key findings’ memorandum, pointing out deficiencies such as: not following the strategy of procuring directly from refiners, no technical evaluations, no comparison of bidders, and not achieving the optimal price and volume mix. De Ruyter pointed out that BP was excluded as a strategic partner (as this could prove costly), and Engen because its pricing wasn’t understood.

De Ruyter cautioned that Eskom would be locked into a sub-optimal five-year contract.

Dissent and accusations

The proposal to investigate the oil contracts was carried by a majority of seven to three at a board meeting held on March 25.

Eskom non-executive director Professor Tshepo Mongalo said the grounds were based on “unproven allegations of irregularity and/or fraud”, and that the cancellation would not amount to a proper exercise of a director’s fiduciary duties, being duty of care, skill and diligence.

Dabengwa followed up with a series of emails accusing management and De Ruyter of having misled the board by providing it with “false and unsubstantiated” information in support of cancelling the contracts.

Dabengwa calls for investigation

Dabengwa’s serious allegations were discussed at the following board meeting, held on April 29. Dabengwa pointed out that the board was already conflicted as it had based its decision on “alleged false information”. The matter should therefore be investigated by an independent party.

Dabengwa crystallised his complaints in three issues:

• De Ruyter had not provided documentation to support his opinion that the board had, in January 2019, adopted a resolution to procure heavy fuel oil from refineries only.
• De Ruyter should provide a detailed report in regard to “anti-competitive practices”.
• De Ruyter should provide documentary evidence substantiating his allegations of “fraud and corruption”.

Trengove’s investigation

Alleged misleading of the Eskom board

Trengove found the January 2019 board minute to be inconclusive.

However, group procurement officer Solly Tshitangano, who had attended the board meeting, referred to the board resolution of procuring oil directly from refineries in a letter to National Treasury in February 2019. National Treasury agreed to “support the implementation of the optimum procurement approach on condition that it is cost-effective for the business and that refineries compete against each other”.

Dabengwa told Trengove that he was unaware of the “trail of correspondence”.

Trengove found that De Ruyter’s statement that the board had adopted a new strategy to procure heavy fuel oil only from refineries was “in all probability correct” and that the statement was made “honestly and with good reason”.

Trengove found that Dabengwa’s “accusation of dishonesty was however baseless and irresponsible”. Further: “Dabengwa did not have a shred of support for his accusation of dishonesty. It was irresponsible of him to make it.”

Alleged collusion between bidders

In Hewu’s memorandum to the board to inform it of the serious issues regarding the fuel oil contracts, he said there was a suspicion that Sasol and Econ Oil might have colluded in the preparation of their bids.

Dabengwa called on De Ruyter to “provide particularity as regard the anti-competitive practices” and to provide a detailed report. And if De Ruyter did not acquiesce, it would “lead to the inference that his averments were made recklessly.”

Trengove found that De Ruyter did not mislead the board, and had disclosed all the available information to the board.

Trengove further found that the suspicion of collusion between Eskom and Econ Oil was worthy of investigation. “If it was substantiated, it would mean that Sasol and Econ Oil had unlawfully and fraudulently induced Eskom to pay more for its heavy fuel oil than it should have done. It was a consideration in favour of cancellation of the fuel oil contracts.”

De Ruyter was found innocent of any misconduct on this score.

Alleged ‘fraud and corruption’

Dabengwa accused De Ruyter of having made a “bold and unsubstantiated statement … that there has been fraud and corruption”, particularly on the part of Econ Oil, and that the “evidence of misconduct is both unproven and unrelated”.

There had however been previous allegations against Econ Oil.

In January 2019 Bowmans, appointed to investigate allegations of misconduct, uncovered evidence of a potentially improper relationship between Eskom employee Thandi Marah and Econ Oil. Before Bowmans could publish its final damning report, its mandate was cancelled.

Trengove found that De Ruyter had never contended that the current evidence proved “fraud and corruption” on the part of Econ Oil – he merely contended that there was evidence that Econ Oil had in the past been guilty of misconduct in its relationship with Eskom, and this was cause for investigation.

Trengove found that De Ruyter did not mislead the board, had presented the evidence to the board for the directors to make their own assessment, and is innocent of any misconduct. Further, Eskom should have investigated the incriminating evidence against Econ Oil before awarding the new contract.

Perspective

De Ruyter is the second senior Eskom executive to be cleared of unproven and unsubstantiated allegations in the space of less than two months.

Eskom chief operating officer Jan Oberholzer was cleared and vindicated by a court judgment as well as an Eskom report that was presented to the board on August 31.

Mandated with the mammoth and unenviable task of turning South Africa’s beleaguered power utility around at this pivotal time, there can be no doubt that Eskom’s CEO and COO should be able to focus on the very urgent matter at hand without any unnecessary distractions.

Dabengwa resigned from the board on July 23.