by Kyle Cowan, Sipho Masondo, and Azarrah Karrim
3 May 2021
Original News24 article here
R178 160 990 959.84. This is the value of dodgy “red-flagged” tenders awarded by South Africa’s power utility Eskom over the past decade to companies, including multinational conglomerates, that are tainted by corruption or misconduct.
And investigations into the rot at Eskom have only just begun, after attempts by senior managers to shut down anti-corruption probes were foiled over the last two years.
The contracts, many of them linked to the construction of the multibillion-rand Kusile Power Station in Mpumalanga, range from wastewater plants and accommodation to coal haulage and even purchasing milk and toilet paper at enormously inflated prices. At Kusile alone, corruption, theft and fraud, coupled with poor management and inadequate planning, have seen the construction costs of the facility balloon to R161 billion from the initial estimated cost of R78 billion.
And Kusile was supposed to help alleviate the pressure on Eskom’s electrical grid and give reprieve to South Africans suffering under regular occurrences of load shedding.
The value of the alleged dodgy contracts – R178 billion – equates to almost half of Eskom’s crippling debt of approximately R411 billion. It is also enough to fully vaccinate the entire South African population with Covid-19 shots roughly 20 times over.
According to an interim report prepared by law firm Bowmans for Eskom in May 2019, the firm was investigating numerous contracts at Eskom, ranging from construction projects to consulting work, valued at more than R178 billion. But investigations into the contracts were suspended by senior members of Eskom’s management in 2019, just as forensic inquiries into criminality were starting to reveal the full extent of corruption at the parastatal.
Bowmans’ investigation was only recommenced last year after the arrival of new group chief executive André de Ruyter and chairperson of the board, Professor Malekgapuru Makgoba, and after almost 12 months during which the Special Investigating Unit (SIU) fought a lone battle exposing graft at the company.
Today, News24 publishes the first of a series of exposés based on the Eskom Files: a leaked trove of Eskom documents, including thousands of pages of letters, forensic reports, emails, bank statements, and payment analysis in our possession.
These documents, provided to News24 and the Global Initiative Against Transnational Organized Crime, reveal the depth and breadth of corruption at the company, the immense task of unraveling it, and the state of current investigations. It also gives insight into the extensive efforts from inside Eskom to discredit and sabotage the various probes by law enforcement agencies and private firms into the organisation.
The Eskom Files show that:
– Systemic corruption has tainted hundreds of contracts at Eskom’s mega-build projects at the Kusile, Medupi, and Ingula Power Stations;
– A group of senior Eskom executives stood at the centre of an alleged corrupt network of employees who demanded and received millions of rand in kickbacks;
– Billions of rand were wasted overpaying suppliers who colluded with Eskom managers and officials, including contracts to supply tea and sugar at Eskom’s Megawatt Park head office;
– Various multinational companies offered sweeteners to allegedly corrupt Eskom managers, helping them live beyond their means; and
– How attempts by different Eskom managers to stem the tide of corruption and criminality was stymied and seemingly sabotaged.
Investigators have, to date, collected more than 30 terabytes of documents and data forensically imaged from laptops, 300 email accounts have been copied, and more than 250 bank accounts identified for further scrutiny.
The Eskom Files also reveal the mind-boggling scope of corruption at the parastatal. The company is one of the single biggest employers in the country; it controls annual procurement budgets of billions of rand and whose historical mismanagement represents the single biggest threat to the South African economy.
One Eskom manager told News24: “There almost isn’t a single contract at Eskom that is not tainted by corruption in some way or another. Even the tea and sugar contract at Megawatt Park seems bent. But we only have so many resources. Do we go after that, or do we go after the big contracts at Kusile?”
According to Eskom spokesperson Sikonathi Mantshantsha:
– Eskom has reported more than 110 criminal cases to the police for investigation;
– The SIU has referred 60 cases to the National Prosecuting Authority (NPA) for prosecution;
– The SIU has also referred 53 matters to the NPA’s Asset Forfeiture Unit (AFU); and
– Civil proceedings have been launched to recover some of the losses suffered.
SIU spokesperson Kaizer Kganyago, who refused to comment on specific investigations, said that the 53 matters referred to the NPA included six Eskom contractors, 11 current and former Eskom employees, nine sub-contractors, and 12 private people.
The Babinatlou slush fund
Despite numerous referrals to the Hawks and the NPA, arrests have been limited to one case involving Tubular Construction, an Eskom supplier which received contracts worth R1.2 billion related to Kusile.
Tubular was among a host of multinational companies which allegedly paid kickbacks worth millions of rand to an entity called Babinatlou Business Solutions. This registered company was controlled by senior Eskom officials Frans Hlakudi, a former senior contracts manager; Mildred Nyoka, a former senior contracts manager at Kusile and Abram Masango, former head of group capital.
Babinatlou was allegedly used to bankroll these and other Eskom managers’ lifestyles, including buying an expensive property, building houses, and paying for exclusive schools for their children. Many of these dealings occurred under their names, using their Eskom email addresses. In one case, an Eskom executive requested a payment of hundreds of thousands of rand before lunchtime if a supplier wanted a contract extension. This payment was made within an hour.
News24 has seen extensive forensic evidence that links this network and a range of South African and international companies to the Babinatlou scheme, and will report these in the coming days.
The enemy within
Bowmans’ mandate to investigate corruption at Eskom was quietly suspended in May 2019, exactly a year after they were officially appointed. Documents show this happened shortly after a damning report into alleged irregularities related to a contract with Econ Oil to supply Eskom with fuel oil was drafted and presented to the company in January 2019.
The decision was seemingly taken by four senior Eskom officials – whose identity is known to News24 – with at least one official now linked to allegedly acting in the interests of Econ Oil. News24 previously reported that Econ Oil had received billions of rands in contracts for 15 years.
The four officials bypassed chief operating officer Jan Oberholzer, who commissioned Bowmans to focus their investigations on contracts related to Kusile, Medupi and Ingula shortly after his appointment in July 2018.
The whole senior leadership of the group capital division (which oversaw big capital projects), including Abram Masango, group executive: group capital; Peter Sebola, general manager for contract management; and others had either resigned or been dismissed within weeks of the investigation commencing. The resignations happened before Eskom could start with disciplinary procedures.
After Bowmans’ mandate was suspended in 2019, Eskom awarded Econ Oil two short-term and one long-term fuel oil supply deals worth R8 billion. These contracts were motivated by Solly Tshitangano, the now-suspended chief procurement officer, despite his knowledge of the Bowmans report and a similar report by consultancy McKinsey in 2014 that exposed overpayments of more than R1 billion.
“The reason provided [for the suspension of the Bowmans mandate] was that Eskom had concerns regarding costs escalation and was facing budgetary constraints. Bowmans was instructed to suspend any work regarding the mandate until Eskom and Bowmans agreed to the new scope and estimate of costs of work to be done,” Eskom spokesperson Sikonathi Mantshantsha told News24.
“Eskom executives at the time informed Bowmans it should finalise only certain outstanding matters – except the probe into Econ Oil. “Econ Oil… was not one of those matters (to be finalised),” Mantshantsha said.
“Having spent significant time and effort in bringing a report to a very advanced state of readiness (the January 2019 preliminary report), it is puzzling that an instruction was issued to Bowmans to suspend work on the report and refrain from submitting the report,” Mantshantsha said.
Eskom asked Bowmans to complete its report into Econ Oil in May 2020 following a request from De Ruyter, who assumed office in January 2020.
Eskom sources, forensic experts, and investigators have told News24 that neither Eskom nor law enforcement agencies have sufficient resources to deal with the vast network of corruption at the company. Those investigations are for now limited to specific projects, such as Kusile.