Eskom seems compromised in nuclear deal

By Neil Overy

This article appeared in Business Day Live

An overwhelming amount of recent research demonstrates that SA’s state-owned entities (SOEs) such as Eskom, fall far short of their constitutional obligations in terms of oversight.

For example, in 2011, a joint report by PwC, the Institute of Directors in Southern Africa and the Development Bank of Southern Africa noted the lack of effective oversight of SOEs; in 2012, a report from the Centre for Corporate Governance in Africa at Stellenbosch University called on SOEs to improve their disclosure of information to enable effective oversight; while in 2013, the government’s own review of SOEs called for an “urgent review of oversight practices” that it found to
be “inadequate”.

It is within this context that there are two particularly worrying features of Energy Minister Tina Joemat-Pettersson’s recommendation that Eskom, and not the Department of Energy, should manage the procurement of any new nuclear power stations.

The decision vests a great deal of power and responsibility in the Eskom board, and it brings the procurement directly within the purview of President Jacob Zuma.

Enabling legislation grants the Eskom board an enormous amount of power, not least of which is its responsibility to manage procurement “fairly, equitably, transparently, competitively and cost-effectively”.

As the majority shareholder in Eskom, the government has unlimited power to appoint board members, making it vulnerable to political interference and even “capture”.

To what extent the current board is acting in the best interests of all South Africans is unclear, but there are obvious causes for serious concern.

The Supreme Court of Appeal’s December 2015 finding that the contract for the replacement of steam generators at Koeberg awarded by Eskom to Areva was “unlawful and unfair” is extremely troubling. As is the more recent allegation that Eskom may have misled the Constitutional Court about the timing of the replacement of the steam generators to ensure the contract remained with Areva.

The Treasury has stated publicly that Eskom board members are blocking its investigation into coal contracts signed between the SOE and mining houses, especially as they relate to companies linked to the Gupta empire.

In particular, the Treasury is concerned with the Gupta purchase of Optimum Coal mine from Glencore and the subsequent contracts signed between Eskom and the mine, one of which advances R587m of credit to “secure” supplies from Optimum for Eskom.

This brings into focus the wider question of the influence of the Guptas on the Eskom board. Eskom CEO Brian Molefe is known to have close ties with the Gupta family, board member Mark Pamensky sits on the board of Oakbay Investments (the holding company for the Gupta’s businesses in SA), while previous Eskom chairman Zola Tsotsi claimed in March that he was forced out because he
did not push enough business their way.

Rumours also abound that Eskom’s support for the nuclear deal is partly the result of the Gupta’s desire to see their uranium mine — purchased with a loan from another SOE, the Industrial Development Corporation — turn a profit, something its very unlikely to do without the nuclear deal.

While the extent to which the Eskom board is “compromised” is up for debate, two investors have already dumped Eskom. Futuregrowth and Denmark’s Jyske Bank have stopped extending new credit to Eskom, with both citing “governance concerns”, and Jyske Bank drawing particular attention to the influence the Gupta family appears to have within Eskom.

The danger of political influence being exerted on Eskom was further deepened by the announcement in August that Zuma would directly oversee a Presidential State-Owned Enterprises
Coordinating Council.

According to Minister in the Presidency for Planning, Monitoring and Evaluation Jeff Radebe, the council is being established to give Zuma “a line of sight” on the operation of SOEs. Quite why Zuma needs this line is unclear, given the pre-existing interministerial committee on SOEs under Deputy President Cyril Ramaphosa, and the power vested in Zuma as the head of the executive.

The creation of such a council with Zuma at the top has been met with incredulity.

Former finance minister Trevor Manuel was recently quoted as saying that he was “running out of ideas” as to why such a council was necessary, while Futuregrowth’s investment head cited its creation as the main reason for the company’s decision to pull the plug on future loans to SOEs.

Only time will tell if the council becomes another mechanism by which the Zuma-Gupta nexus can plunder state coffers by directing procurement processes.

What we can say for sure is that the current battles over SOEs are likely to play a determining role in whether the Treasury retains its constitutional role as the guardian of the national revenue fund.


• Overy is a freelance environmental researcher

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