Eskom And Government: A Tango Of Order, Disorder, Discord And Corruption…

Eskom is in debt to the tune of more than R420 billion and has applied to the regulator for tariff increases totalling 56% over the next three years. PICTURE: BusinessLIVE

Multiple teams that blur lines of accountability in a time of crisis tend to deepen the crisis, writes LUKHONA MNGUNI

When pundits were asked to predict the key areas that President Cyril Ramaphosa would focus on in his State of the Nation Address, very few – if any – did not mention ESKOM. The beleaguered power utility has been struggling to stabilise since the first power outages/blackouts in January 2008.

This was all triggered by the government’s refusal to invest in Eskom to expand its installed power production capacity following an advisory memo in 1998. At the time, the government chose an unpopular – possibly less necessary – investment; the Arms Deal. Effectively, we can argue that today we are feeling the external costs of that Arms Deal.

In about 2005 the government eventually realised it needed to move on plans to expand Eskom’s capacity. As if this was not enough, the African National Congress colluded with the would-be supplier of boilers for the Kusile and Medupi power plants. In 2005 the ANC’s investment arm, Chancellor House, bought itself a 25% stake in Hitachi Power Africa.

In what was political gamesmanship on the part of the Japanese company, the ANC was also unwilling to let a good opportunity go to waste in a sure project that its government would be in full control through influencing Eskom board appointments. This was before the days of Zuma as a president and his now popularly termed “years of state capture”. The ANC had already captured Eskom and its mega infrastructure build programme for its own benefit.

With or without Zuma, holding Hitachi accountable was always going to be a nightmare for an ANC led government because of how the party compromised its governing roles and responsibilities by colluding with the company when it was a potential service provider. This is at the core of the nightmare reported recently by Minister Pravin Gordhan that the Medupi’s costs had escalated from R24.9-billion to R145-billion and Kusile’s from R80.7-billion to R161.4-billion.

Most concerning of all is that the majority of these escalations have been funded through borrowing over the years, ballooning Eskom’s debt to about R420-billion to date. This is catastrophic for an organisation where “cash generated does not cover operating and debt servicing costs”, as per Minister Gordhan’s presentation.

Six years ago, the issues that Gordhan is flagging as alarming were raised by a former minister in that department who promised to crack the whip. One doubts if he ever had the ability to do so. In 2013 Malusi Gigaba said an independent consultant had been appointed to look into Eskom’s ability to manage its mega projects. Acorn Consulting was to carry this task including identifying risks and implications for further delays and cost escalations.

Where is that report? Nobody knows. Today we are informed that international experts from the giant Italian energy company Enel SpA will descend on our country. To do what? You guessed it, the same task performed by Acorn Consulting in 2013. In that very same year of 2013, the Supreme Court of Appeals had found in favour of Eskom in a case where the utility was demanding performance guarantees worth R600-million on Hitachi’s missed deadlines and thus contract breaches. Why the company is still on the job beggars belief.

Could it be that the ANC led government feels indebted to Eskom? Minister Gordhan lamented that Medupi and Kusile “have suffered massive delays and cost overruns due to poor planning, poor engineering designs, poor procurement practices/poor contracting and corruption”. These issues have been known for a while now. One can argue that under the Zuma government – one predicated on corruption and looting at a grand scale – there was no appetite to extricate corruption from the operation of the state.

However, one year into the Ramaphosa’s new dawn we do not see an appetite to tackle the long-identified corruption, fraud, shoddy workmanship at Medupi and Kusile. By now, the core task of the board and an executive appointed in 2018 would have been to place Medupi and Kusile on suspension until a thorough review and accountability exercise had been done on all the culprits who have brought Eskom to the precipice of an abyss it now finds itself hovering over.

Could it be that Hitachi is to the ANC what Bosasa is to the ANC? In 2015, gripped by the long arm of the law at the United States of America, Hitachi opted for a fine without admission or denial of guilt on the allegations that the company had “inaccurately recorded improper payment” to an arm of South Africa’s ruling African National Congress.

These payments were deemed success fees were recorded as consulting fees. The US Securities and Exchange Commission, neither convinced nor fooled by this, unearthed that in fact Hitachi (in an internal memo in 2007) had considered the balance of political power was on board and the Eskom board, appointed by the ANC government would award them contracts.

What did the ANC benefit from this? A report by Bloomberg News puts inaptly:

“Chancellor House paid $190 819 for its stake in 2005. By July 2008, Hitachi’s African unit started making payments of success fees, which it reported as “consulting fees”, and dividends totaled about $6m. In February 2012, it also paid Chancellor House $4.5m to buy its 25% stake, giving the ANC front company a 5 000% return on its investment, the SEC documents showed.”

One can imagine that there could be other various illicit deals happening with proxy companies that enter into subcontracting ventures only to raise money in part for the ANC. The Medupi and Kusile projects do not need consultants, they deserve a full-scale judicial inquiry that will unearth the rot that has led to Eskom being a debt trap bottomless pit. The President has been good at appointing commissions, will he heed this call?

Unfortunately, the President inspires no confidence in how he is tackling the issues affecting Eskom. He has no plan at all. He is playing finder-finder while Rome (oops Megawatt Park) burns. In January 2018 he appointed a board (giving it an illegal directive on what to do with some Executives, this was confirmed by the Labour Court). The board moved swiftly to remove the “rotten Executives” everyone wanted to see gone.

By May 2018 Eskom had a permanent CEO in Phakamani Hadebe. On a move that can be deemed as a vote of no confidence on the board, Ramaphosa in December 2018 appointed a panel of experts to, among other things, review the turnaround strategy of the Eskom board, review Eskom’s business model and structure. The panel was also to investigate “key assumptions, impact on tariffs and industry, and viability of proposed solutions on the future role of Eskom”.

Where is that report? If the report is available why did the President as head of government – the shareholder – allow himself to be part of a process to appoint international experts now in February 2019? Is this not a vote of no confidence on himself, given that he was to receive a report in January 2019 from his initial panel of experts? Lastly, the President has appointed an inter-ministerial committee headed by the Deputy President who will report to him daily.

This seems exaggerated unless the Ministers will also move into Megawatt Park offices to co-manage Eskom? Multiple teams that blur lines of accountability in a time of crisis tend to deepen the crisis. It seems from those with whom authority is vested to do something about Eskom, they are clueless on what ought to be done or they are compromised by their unprincipled collusion with Hitachi back in 2005.

Mnguni is a Ph.D. Candidate & Researcher at the Maurice Webb Race Relations Unit, UKZN and a 2019 Democracy Fellow with the Open Society Foundation- South Africa.