EDINBURGH — Global consultancy McKinsey has been depicted in a leading international business newspaper as a criminal organisation in South Africa. The Financial Times tells its readers that South African lawmakers accuse McKinsey employees of devious moves to suck as much money as possible out of state entity Eskom. McKinsey has repeatedly underplayed its role in the state capture scandal, which rocked South Africa and led to ratings downgrades. – Jackie Cameron
By Thulasizwe Sithole
South African lawmakers have accused McKinsey of possible criminal wrongdoing in a report that condemns the consultant’s work for the state power monopoly over its links to a political corruption scandal, reports the Financial Times.
The global management consultancy acted as a “de facto legitimising vehicle” for Trillian, a company linked to the Gupta business family, to siphon money from the Eskom utility, according to the report published by a South African parliamentary committee on Wednesday, it tells its global audience.
“McKinsey’s potential use of Trillian to extract rents from Eskom may constitute criminal conduct, the report added. McKinsey has already apologised for mistakes and repaid fees of about R1bn ($72m) over the scandal affecting its biggest ever African contract. But the report is likely to damage its image further in South Africa, where it has lost clients over the fallout.”
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The FT recaps the story of the Guptas, who used a friendship with Jacob Zuma to take control of state-owned companies and their public contracts — claims they deny but which are being probed under President Cyril Ramaphosa.
The remuneration model for McKinsey was based on hypothetical cost savings that were attributed to McKinsey’s intervention by McKinsey itself, it notes.
“McKinsey has previously admitted that it should never have worked with Trillian at Eskom between 2015 and 2016. It ended ties after questioning Trillian’s ownership.”
Kevin Sneader, the firm’s global head, is reported as saying that McKinsey overcharged for its work, a turnaround plan for Eskom to overcome recurrent blackouts.
“Wednesday’s report from the portfolio committee on public enterprises joins other official probes in finding that Eskom executives improperly issued the contracts to McKinsey and Trillian. This month an investigation commissioned by South Africa’s Treasury found that McKinsey’s appointment violated the constitution,” says the FT.
Eskom is regarded as the single biggest target of the alleged Gupta conspiracy. It provides nearly all of the electricity for Africa’s most industrialised economy, it continues.
“Contracts to supply coal to its power stations dominate the mining industry. Gupta family members and Duduzane Zuma, Mr Zuma’s son who went into business with them, exerted ‘undue influence’ on Eskom’s decisions, the MPs’ report said.
“Mr Zuma and his son deny wrongdoing. Mr Ramaphosa has launched a clean-up at Eskom, including replacing implicated executives, but corruption and waste have brought the monopoly and its R336bn of government-underwritten debt close to financial collapse.”
Eskom faces “severe financial difficulty”, chairman Jabu Mabuza is quoted as saying.
McKinsey accused of criminal deeds
McKinsey’s work at Eskom is already the subject of a number of regulatory probes in South Africa, including a criminal investigation launched by anti-corruption police, comments the FT. “Wednesday’s report will renew questions about its role.”
“It is highly improbable that a company as sophisticated as McKinsey could, in good faith, have assumed that the contract with Eskom was lawful given red flags such as fees that the consultancy could effectively set for itself, the report said. The remuneration model for McKinsey was based on hypothetical cost savings that were attributed to McKinsey’s intervention by McKinsey itself, it said.”
McKinsey’s own investigation of its Eskom work found no evidence of corruption, adds the FT.
