The Eskom basket case: R200,000 mop and R80,000 knee guards, thank goodness for the FM turnaround

South African Finance Minister Enoch Godongwana recently exempted Eskom from reporting its irregular and wasteful expenditure in its financial statements for three years, despite former Eskom CEO André de Ruyter having disclosed significant irregularities at the state-owned power utility. National Treasury said that Eskom was granted the exemption to protect its credit rating and allow it to comply with new reporting requirements. The cumulative financial impact of state capture and corruption on Eskom is likely to be far higher than R14.7bn, and the problems caused by corruption and fraud include significant delays in awarding contracts and the employment of “shady service providers”. Read more below.

New development: Finance Minister u-turns on Eskom exemption on irregular, fruitless and wasteful expenditure … for now


Eskom’s R200,000 mop and R80,000 knee guards

Finance minister Enoch Godongwana recently exempted Eskom from reporting irregular and wasteful expenditure in its financial statements for three years. This is despite former Eskom CEO André de Ruyter disclosing significant irregularities at the state-owned power utility.

National Treasury said Eskom was granted the exemption to spare its credit rating and give it time to comply with new reporting requirements.

“A major risk of having non-material, non-corrupt transactions reported in the annual financial statements include a higher likelihood of qualified audit opinion (which other listed companies do not face) that triggers loan covenants,” Treasury stated.

This would likely further increase Eskom’s cost of borrowing and may result in additional fiscal pressure should the state-owned power utility be unable to negotiate lender waivers.

Eskom emphasised that it must still report irregular, fruitless, and wasteful expenses in its integrated annual report, tabled by the Minister of Public Enterprises in Parliament.

De Ruyter said corruption has hollowed out Eskom’s financial resources, caused the loss of experienced and skilled personnel, and negatively impacted its generation capacity.

Read more: Eskom’s corruption woes vanish in puff of smoke as exempted from key regulations – Ivo Vegter

Electricity minister Kgosientsho Ramokgopa, however, downplayed the impact of fraud and corruption, saying it was not behind Eskom’s operational problems.

In his sworn affidavit in a legal battle with 19 applicants to declare load-shedding unconstitutional, De Ruyter said corruption has profoundly affected Eskom.

He highlighted that the Judicial Commission of Inquiry report found that “R14.7 billion of Eskom’s contracts are calculated to have been afflicted by State Capture”.

More generally, the cumulative financial impact on Eskom of State Capture and corruption is difficult to quantify, but it is likely significantly higher than R14.7 billion.

The former Eskom CEO said corruption has compromised Eskom’s financial position, board, and management structures.

It has also reduced its coal supply security, degraded its power stations using out-of-specification coal, and negatively impacted its generation capacity.

De Ruyter’s views on the impact of corruption are shared by former Eskom generation executive Rhulani Mathebula, who said corruption is the power utility’s biggest challenge.

Mathebula said the biggest problem Eskom faces and which influences most challenges is fraud and corruption.

The impact of fraud and corruption is felt throughout the company and undermines any effort by the great engineers and other staff at Eskom.

The problems include people stealing coal and diesel, damaging plants to get maintenance contracts, and delivering the wrong spares and equipment.

Because of corruption and fraud, there are significant delays in awarding contracts and “shady service providers” who do very poor work are employed.

“Fraud and corruption are the biggest enemies of progress at Eskom. It is the most important issue to fix Eskom to get the maintenance program back on track,” Mathebula said.

Read more: OUTA on Eskom PFMA exemptions: where’s the transparency?

Examples of fraud and corruption at Eskom

Rhulani Mathebula, former Eskom executive for generation

Mathebula revealed that Eskom is paying up to 10 times more for services and materials because of procurement problems, fraud, and corruption.

De Ruyter provided more detailed information in an interview on My Guest Tonight with Annika Larsen.

Here are a few examples of fraud and corruption at Eskom, which De Ruyter and others have exposed.

  • Eskom paid R80,000 for a pair of knee guards that cost R320 at Builders Warehouse.
  • Eskom paid R200,000 for a wooden-handled mop which costs less than R100 at most stores.
  • Eskom paid R940,000 for an oil storage container that could have been bought for R80,000.
  • Eskom paid a company R600,000 to fix 12 grass trimmers. The power utility could have bought 12 new grass trimmers for R114,000.
  • Eskom paid R26.00 per single one-ply toilet paper roll, which costs R3.99 at Checkers.
  • Eskom paid R51 per black refuse bag, which costs R2.99 at Checkers.
  • Eskom paid R21 for a litre of milk, which costs R12.49 at Checkers.
  • A buyer at Kendal Powers Station placed an order to refurbish two compressors for R368,550. The price of two new compressors would have been R112,000.

An example of the impact of corruption on Eskom was the unlawful award of a contract to supply coal to Eskom’s Majuba power station to the Gupta-owned company Tegeta Exploration and Resources.

Tegeta provided the Majuba power station with out-of-specification coal and undersupplied Eskom with around 265,000 tons of coal.

As a result, Majuba’s coal stockpile fell below 10 days, whereas it required 40 days’ worth to maintain the security of supply. This put the power supply from the station at risk.

Tegeta’s coal failed numerous quality control tests before executives intervened to ensure it was scored positively.

De Ruyter said South African police and security services do little to protect Eskom against widespread fraud and corruption.

He said they reported the fraud to the police, but the perpetrators are often released without any charges.

Read more: Former Eskom CEO to meet with lawmakers about corruption allegations

Electricity minister downplays impact of corruption

Kgosientsho Ramokgopa during a visit to Kusile Power Station on Tuesday, 22 March 2023

Electricity minister Kgosientsho Ramokgopa downplayed the impact of fraud and corruption on Eskom despite the evidence De Ruyter provided.

He dismissed De Ruyter and Mathebula’s warnings, saying corruption is not at the heart of Eskom’s operational troubles.

Ramokgopa also questioned De Ruyter’s claim that a corrupt tender awarded to Hitachi Power Africa to provide Medupi and Kusile with boiler units is to blame for the current severity of load-shedding.

De Ruyter said the boiler units were not fit for their purpose at the power stations as the exhaust gas temperature from the boiler supplied by Hitachi was too high.

This contributed to the collapse of a flue duct at Kusile, which resulted in three operating units being taken offline.

Ramokgopa said the problems at Kusile have nothing to do with corruption whatsoever and everything to do with design deficiencies.

“There’s 210MW in addition to improvements to the plant performance at Kriel that has nothing to do with corruption,” he said.

“There is 1,000MW you can get from Kendal yesterday that has nothing to do with corruption. It has everything to do with the fact that we can’t remain within the emission limits,” he said.

Tutuka, which is riddled with theft, corruption and fraud, is one of the worst-performing power stations in Eskom’s fleet.

Ramokgopa said a key issue hampering Tutuka’s performance is inferior coal quality which is not linked to corruption.

“The source of the problem is at the mine. It has nothing to do with someone diverting coal and then mixing with rocks,” he said.

A version of this article was first published by Daily Investor and is republished with permission.

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