Gupta-tainted McKinsey defends work with Eskom: Explains its dealings with Trillian, Regiments #Zondo #2020

McKinsey has defended the work it did at Eskom before pulling out of a joint partnership deal with the Gupta-aligned Regiments Capital and Trillian Partners.

Testifying remotely from Germany earlier this month, Dr Alexander Weiss – a senior energy consultant for McKinsey – told the Zondo Commission that Eskom’s cost escalation was above inflation, leading to an increase in tariffs. This had a knock-on effect on the country’s economy and McKinsey was brought into stabilise the power utility’s output and maintenance levels.

He told the Zondo Commission about a contract which began in December 2015 and was cancelled in June 2016. McKinsey and Trillian were paid R1,7bn, with McKinsey offering to pay back R600m in consulting fees. Weiss said McKinsey did real work to boost the output of power stations.

“When we left, the power station had an availability of 84%. It is a six-unit power station. You need to increase availability to prevent load-shedding. I am personally very sad we could not continue the work and support Eskom in significantly increasing the availability factor for the entire fleet.”

Weiss was also part of the strategy team which onboarded Anoj Singh and Brian Molefe in the roles of chief financial officer and chief executive officer. The pair had been seconded from Transnet after an inquiry was launched into the struggling power utility by then President Jacob Zuma.

According to Weiss, the appointments of Molefe and Singh – who have been implicated as Gupta associates – was not unusual as, through a decade, Eskom had seen about a dozen CFOs and CEOs appointed into the hot seats. Weiss said it was McKinsey’s duty to get the two up to speed with what was happening at Eskom in 2015.

On the reason for approaching Singh and Molefe, Weiss said they were experienced and the power outages had come back which was highly disturbing.

“Everyone who comes in has a short time to get up to speed. McKinsey felt it was duty to present information to leadership team and the predecessors.”

However, when Trillian, a division of Regiments Capital with Eric Wood at the helm, was introduced to McKinsey by Eskom executives under the premise that a partner would be established, red flags were raised, said Weiss.

Eskom said Trillian would be partners based on its capabilities of risk management and working closely with parastatals.

The McKinsey team in Germany requested that Trillian to provide BEE certificate to prove that it was indeed a black-owned firm. Eskom had punted Regiments as BEE-compliant and this was one of the agreements for them to work with McKinsey.

As time wore on, Weiss said it became clear that Trillian couldn’t provide the paperwork required. Weiss says there was news about potential activity of Regiments employees being involved in state capture and having ties to the controversial Gupta family.

“Several risk consultants tried to find out who is behind the company. On 14 March committee members from McKinsey said they agreed to end the relationship as Regiments were not transparent. They sent letters and though they knew they had to work with them, forwarded termination to Regiments and Trillian,” said Weiss.

A conflict of interest presented itself in the form of a Majuba power station contract which went out to bid. The Majuba power plant, based in Mpumalanga was operating at low capacity and a contract was sent out to tender for suppliers to provide maintenance and generation to the struggling station. McKinsey found out that Trillian was one of the companies bidding for a contract it was consulting on. This put Trillian in a favourable position to win the bid with the supplier as they had first-hand knowledge of the tender.

“They were planning to assist in overseeing procurement but they were in a relationship with the supplier who was bidding.”

Weiss says he made it clear he would not go forward in working with Trillian. Eskom employees, however, decided they wanted to have Trillian around.

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Watch Dr Alexander Weiss of McKinsey give his testimony at the Zondo Commission earlier this month. 

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