Failure by the 2015 Eskom board to interrogate the submission to authorise a R1.68-billion prepurchase payment to a Gupta-owned company cast doubt on the directors prudence, with State Capture Commission chairperson Deputy Chief Justice Raymond Zondo going as far as calling them negligent on Wednesday.
The board had approved the transaction as part of a contract to secure continued coal supply by the Optimum Coal Mine, which was on the verge of changing hands. The mine, formerly owned by Glencore, was at the time in the throes of financial ruin and undergoing business rescue. Tegeta Exploration and Resources, a Gupta-linked company, had been lining up to buy the mine.
The board took a decision to approve the payment to the "proposed" owners of the mine, in what Zondo said should have raised red flags among board members.
A former Eskom board member, Pathnathan Naidoo, who also sat on the finance and investment committee that discussed the payment, attempted to justify the payment and the board's apparent lapse of judgement in interrogating the submission.
'NO IDEA' WHO OWNED OPTIMUM
Naidoo told Zondo that the board was under the impression that it was being asked to discuss and conclude payment to the owners of Optimum, which would have been Glencore, not Tegeta.
"We had no details of the owners at the time. In our minds, Glencore was still the owner," said Naidoo.
However, Zondo took issue with the instruction contained in the submission to the board, which then tasked the then-CEO Brian Molefe, former head of generation Matshela Koko and CFO Anoj Singh to negotiate a prepayment agreement with the "proposed" owners of Optimum.
The submission, according to evidence presented before the commission, had been drafted by Suzanne Daniels, Eskom's former company secretary.
Zondo questioned why no one among the group of 12 highly educated members of the board and the finance committee failed to scrutinise the submission and pick up that they were in fact being asked to authorise payment to proposed owners, instead of the current mine owners.
Although Naidoo initially stuck to his guns with his defence of the board's conduct, he eventually conceded that the word "proposed" in the submission "opens a big door".
COULD BE 'MORE' THAN NEGLIGENT
Zondo had stern words for the board's conduct, whose activities in various business matter of the power utility has become a subject of investigation by the commission.
"What is in the resolution of the board suggests to me that … the board was very negligent. It may well be much more than that, but I am not saying that at this stage.
"It may well be that there was negligence on the part of some members … maybe they knew more than others," said Zondo, adding that it was "troubling" that so many board members did not pay attention to what was written in the submission.
"There is a great responsibility on the board when it deals with monies and other decisions, particularly when you are being asked to authorise payment of such a large amount from Eskom to somebody else.
"When you serve in a body such as the board of an entity like Eskom or any board, you are playing a supervisory role over the management. You have to put the interest of the entity at the forefront," said Zondo.
The issue of the R1.68-billion prepayment has featured prominently in the extensive evidence heard by the commission relating to Eskom, including the allegations of external interference at board and executive level of the state-owned power utility.
The Guptas' acquisition of the Optimum Coal Mine was mired by allegations of political interference, with former mining minister Mosebenzi Zwane alleged to have travelled to Switzerland to meet Glencore's bosses to lobby for the sale of the mine to an entity owned by the politically connected business family.
While under Zondo's scrutiny, Naidoo also conceded that the board may not have applied itself fully when dealing with the prepayment submission. He however, argued that the directors operated in a high-pressured environment and dealt with large volumes of work.
"At this point trust and integrity come to the fore. You have to have trust and integrity because you are working in a high-pressured environment," he said.
MONEY WAS MEANT TO KEEP OPTIMUM GOING
Naidoo had earlier in his testimony sought to highlight the significance of the prepayment, detailing that the proceeds of the R1.68-billion prepayment were intended to allow the Optimum Coal Mine to extinguish its existing liabilities and ensure that it remains a going concern to secure the future supply of coal for Eskom and save jobs.
The contract would secure supply for the Hendrina and Arnot power stations and help ensure steady power generation. He stated that the granting of advance payments to business entities was normal practice.
In December 2015, Glencore entered into agreement to sell the Optimum mine to Tegeta for R2.15-billion. It later emerged that the company had a R600 million funding shortfall to secure the deal and had struggled to raised the funding from banks.
Former Public Protector Thuli Madonsela, in her state capture report, found that a R659 million advance payment that Tegeta had received from Eskom was used to help the company buy the Optimum mine.
Evidence relating to Eskom will continue on Thursday.