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Pay back the money: Eskom demands R1.5bn from Trillian, McKinsey

CAPE TOWN — It looks like Eskom is firing both barrels of a shotgun at former service providers Trillian and McKinsey in the hope of bringing down at least one of the vulture-like companies and restoring some credibility destroyed by its partnering with them. Trillian has the direct Gupta links and McKinsey is publicly taking comfort in the apparent lack of a subcontract with Trillian from which it reportedly distanced itself when they failed its own due diligence tests. One may well ask about the due diligence of the Eskom board of the time, but that – along with its dysfunction and capture – is the contextual narrative to this dramatic subplot. The introspective probe by Eskom concludes that certain decisions it made show the R1,5 billion payments it made to the two companies were unlawful, “given the circumstances”. Is this the part where you slay the ‘enemy’ before falling on your own sword? Hardly likely. Watching those who are supposed to energise the nation slug it out with their erstwhile helpers is quite a spectacle. If Eskom has had to dim the lights in the past because of dysfunction and dismal forward planning, the least it can do is shine some metaphorical light on its own dealings. Hope springs. – Chris Bateman

By Andre Janse van Vuuren

(Bloomberg) — Eskom Holdings SOC Ltd. said it will ask McKinsey & Co. and Trillian Capital Partners to return “unlawful” payments that the South African power utility has made under arrangements with the companies.

An electricity pylon stands beyond an Eskom sign at the entrance to the Grootvlei power station, operated by Eskom Holdings SOC Ltd., in Grootvlei, South Africa. Photographer: Dean Hutton/Bloomberg

Eskom is seeking the return of R1bn ($73m) from McKinsey and R564m from Trillian, the power utility said in an emailed statement on Thursday. Trillian was the so-called supply development partner of McKinsey in an agreement it had to provide services to Eskom until the relationship between McKinsey and Trillian ended in March 2016.

Eskom is at the centre of allegations that the politically connected Gupta family used their relationship with President Jacob Zuma to win lucrative contracts from state companies. The Guptas and Zuma have denied any wrongdoing. Trillian, a financial services firm, is linked to the Gupta family through business associate Salim Essa, who was its principal shareholder until he sold out in July.

While Eskom previously denied having done business with Trillian, the utility said in July it would commission an independent investigation into work done by the company and disclosed R495m of payments it had made to it.

A spokesman for Trillian didn’t immediately respond to a phone call or email seeking comment.

“The interim findings from Eskom investigations into the circumstances surrounding payments made to both the companies point to certain decisions by Eskom, and resultant payments, as being unlawful,” the company said in its statement. “It is in the public interest to do everything we can as Eskom to claw back all the fees which were unlawfully paid.”

McKinsey met this week with Eskom to discuss the utility’s internal investigations, the U.S. company said in a statement late Thursday.

“We are encouraged that Eskom is willing to cooperate with us in an independent process to ensure the turnaround program arrangements were lawful,” it said. “While Eskom’s interim findings centre on the decisions which Eskom took in connection with its compliance with the public procurement regulations, McKinsey is reassured” by some of the details of what Eskom presented.

According to McKinsey, the findings included that:

There was no subcontract between Trillian and McKinsey. McKinsey informed Eskom on March 30, 2016, that McKinsey was terminating its interactions with Trillian after it failed McKinsey’s due diligence, and Trillian would not be a sub-contractor for McKinsey on the turnaround program. McKinsey didn’t authorize any payments made by Eskom to Trillian and such payments were made after McKinsey informed Eskom that Trillian failed due diligence.Eskom wrote to both companies to explain the action it will take and requested their cooperation, the utility said in its statement.

South Africa minister says Eskom lies an attack on democracy

By Paul Vecchiatto and Paul Burkhardt

(Bloomberg) — South Africa is ready to start a probe into contracts of Eskom Holdings SOC Ltd., which provided false information about dealings with Trillian Capital Partners Ltd. and McKinsey & Co., the minister overseeing the state-owned power utility told lawmakers.

“I view Eskom’s lying about its relationship with McKinsey and Trillian as an assault on our democracy,” Public Enterprises Minister Lynne Brown said in Cape Town on Wednesday. “If the truth had been told first, then the investigation into the contracts could have been far advanced at this stage.”

Public Enterprises Minister Lynne Brown. Picture courtesy of Twitter

Eskom is at the centre of allegations that the politically connected Gupta family used their relationship with President Jacob Zuma to win lucrative contracts from state companies. The Guptas and Zuma have denied any wrongdoing. Trillian, a financial services firm, is linked to the Gupta family through business associate Salim Essa, who was its principal shareholder until he sold out in July.

While Eskom previously denied having done business with Trillian, the utility said in July it would commission an independent investigation into work done by the company and disclosed R495m ($36m) of payments made to it. Trillian was the so-called supply development partner of McKinsey in an agreement it had to provide services to Eskom. That relationship ended in March 2016.

Wrong Information

“We do acknowledge that the minister has previously been given wrong information and Eskom is currently in the process of dealing with the individuals who have given wrong information to the minister and the board,” Khulu Phasiwe, Eskom’s spokesman, said by phone.

Trillian will cooperate with any investigation related to its work under the supplier development partnership with McKinsey, the company said in an emailed statement Wednesday. It wasn’t involved in the commercial negotiations between Eskom and McKinsey and only invoiced for work authorized and completed “to the client’s satisfaction,” the company said.

“Trillian was allocated a portion of the work as McKinsey’s SD partner for these projects,” it said. “McKinsey had the large portion and Trillian was offered no more work than the percentage earmarked by McKinsey for which Trillian billed accordingly.”

McKinsey, which said in July it was reviewing documents related to work done for Eskom, has said it didn’t engage in corruption or pay bribes and that the fees it made from Eskom were in line with similar projects.

Steve John, a London-based partner at McKinsey and its global director of communications, said Wednesday that the consulting firm had nothing to add to its prior statements.

Bloomberg reported this week that letters written in March 2016 by McKinsey to Trillian and Eskom executives show the U.S. consulting firm was concerned about the reputation risk of working with Trillian as a project development partner. Trillian “is not aware of any basis for McKinsey raising concerns with Eskom after the commencement of the joint work for Eskom, or at all,” the company said in response.

The state’s Special Investigating Unit is waiting for approval from Zuma to begin its probe of Eskom, said Brown. The minister also plans to arrange a special general meeting in November to appoint a new permanent board for Eskom, she said.

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