Trade and Industry Minister Rob Davies. Picture: SUPPLIED
Trade and Industry Minister Rob Davies. Picture: SUPPLIED

The failure of the South African Bureau of Standards (SABS) board to act quickly on an irregular certificate it issued on behalf of a Gupta-owned Tegeta mine is one of the reasons the government wants to suspend its board.

Trade and Industry Minister Rob Davies gave the SABS board members, including CEO Boni Mehlomakulu, a notice of intention to suspend them and to place the entity under administration. They have until Friday respond to the minister.

SABS allegedly issued an irregular certificate of approval of noncompliant coal delivered by the Tegeta’s Brakfontein Mine to Eskom. It has emerged that a Tegeta employee was present at the SABS testing station in August 2015 when the certificate of approval was issued. Third parties are not allowed during testing procedures.

Earlier this year former head of Eskom generation Matshela Koko justified the acceptance of noncompliant coal by Eskom on the basis that it had been given a certificate of approval by SABS.

The SABS plays a critical role in testing products and giving its stamp of approval of their quality and safety. This gives assurance to consumers about the quality of the goods they are buying.

Removal of the board as the accounting authority is the first step before an entity can be placed under administration to manage its affairs.

Department of Trade and Industry director general Lionel October told Parliament’s trade and industry committee on Wednesday about the minister’s notice of intention to suspend the board. He said in an interview that there had been a “massive” lapse in governance and that the SABS had become dysfunctional. Its testing infrastructure had been allowed to degenerate and it was failing in its core function.

The SABS had also decided unilaterally to terminate partial testing of products without the support of the department.

October said the minister had instructed the board to undertake a full forensic inquiry into the irregular issue of a certificate for Tegeta coal.

“The board has not implemented this decision,” October said despite numerous requests. “We have received nothing on what they have done. They failed to conduct this investigation in a timeous manner.”

Another issue raised by Davies was that the SABS was operating a subsidiary called SABS Commercial — which undertook the tests for Eskom — without the required approval from the Treasury in terms of the Public Finance Management Act. The department had asked the SABS to regularise this matter but had not received a response.

October said there appeared to be a cover up of the SABS testing of the Tegeta coal. The Treasury had tried to investigate but the SABS had not co-operated and had withheld information. Three tests were conducted but the SABS withheld information from Treasury about the third test until two years later. The third test was the irregular one.

October briefed the committee of the inquiry that was conducted into the Eskom coal matter. He said that a possible case of collusion and manipulation of the SABS processes had occurred at their laboratory in Mpumalanga when the test was done.

“The preliminary information presented to us by the SABS shows that there was a clear breach of established protocols and that the tests conducted for the Brakfontein coal was “irregular” in a number of respects,” October said.

These breaches included delivery of the samples on a Saturday night with a request that the tests be run immediately. Three samples were delivered directly to the laboratory which meant there was no independent verification that the samples came from the mine concerned. The normal process is to source the sample independently from the mine.

Another breach was that there were unauthorised parties present while the tests were being conducted. Apparently Eskom had insisted that representatives from Brakfontein-Tegeta be “allowed to observe”.

“What is particularly disturbing is that it appears that the Eskom management used these ‘irregular’ tests to justify its decision to lift the suspension of Brakfontein coal,” October said, when they were conducted on the explicit understanding that they would not be used for procurement purposes.

“Information obtained (from Treasury and e-mails from SABS) shows that collaboration between Eskom and SABS in the procurement of noncompliant coal from Tegeta resulted in irregular expenditure of approximately R3bn,” October told MPs.

“There is now clear evidence of serious misconduct on the part of both Mr Koko and SABS officials in that an unauthorised and defective test certificate was issued by SABS and used by Mr Koko for an improper purpose. SABS acted in a dishonest and hostile manner by impeding the investigation undertaken by the National Treasury into the SABS test reports.”

October said that the SABS board and CEO had failed to act despite being aware of the SABS and Eskom collaboration since September 13 2015.

Democratic Alliance spokesman on trade and industry Dean Macpherson welcomed the notice of suspension of the board. He said the DA had been calling for this for the past three months because of the “deep rot” within the organisation. It was important that the SABS be placed under administration so that public confidence in it could be restored.

He said the SABS posed a threat to business sustainability and job creation as a result of its failure to fulfil its core mandate of product quality standardisation. The organisation needed to implement a turnaround strategy “as a matter of urgency”.

“SABS has lost 401 customers since April 2017 because they no longer trust the entity’s testing process,” Macpherson said.

SABS chairman Jeff Molobela leapt to the board’s defence. He said the forensic investigation which Davies requested in February had got under way 10 days ago. The delay was caused by the Department of Trade and Industry, which took a month to issue a request for a proposal to procure the services of a forensic investigator.

Molobela said the SABS decided instead to use its own forensic investigators as it would be quicker. This procurement process had taken two months to finalise.

On the question of SABS Commercial, Molobela was emphatic that it had received the required approval from then finance minister Trevor Manuel in 2006 and that it had been legally constituted.

Molobela was able to produce only a copy of the SABS letter requesting approval for the creation of SABS Commercial but insisted that the SABS was in possession of Manuel’s approval and that he had seen it.

Mehlomakulu said she would resign only if the untested allegations made against her were found by a court to be true. She had been asked by Macpherson why she did not resign in the light of the malaise in the SABS.