Letters show McKinsey warned Eskom of transparency risk at Trillian
The utility paid Trillian after receiving letters from McKinsey, highlighting the lack of detail about shareholders and potential conflicts of interest
Eskom Holdings continued to pay Trillian Capital Partners even after McKinsey warned the utility that it had concerns over transparency at the project development partner.
Letters written in March 2016 by McKinsey to Eric Wood, the CEO of Trillian, and Eskom’s recently suspended chief financial officer, Anoj Singh, show the US consulting firm was concerned about the reputation risk of working with Trillian. McKinsey highlighted the lack of detail given by the company about its shareholders and potential conflicts of interest, the letters seen by Bloomberg show.
Eskom is at the centre of allegations that the Guptas used their relationship with President Jacob Zuma to win lucrative contracts from state companies. The family are business associates of businessman Salim Essa, who sold his stake in Trillian in July.
"McKinsey is uncomfortable about Trillian’s transparency on conflict issues," the US firm wrote in a March 30 2016, letter to Singh. "McKinsey has material concerns around reputational risk to the firm," and, as a result, had stopped working with the company, it said. Trillian said it was unaware of any reasons for McKinsey’s concerns and has denied accusations it did little work for the money it received.
The controversies around Zuma have spread to global companies including accountants KPMG and McKinsey, which have been accused by opposition parties and civil-society groups of facilitating, being party to or turning a blind eye to wrongdoing. KPMG’s top eight partners in SA have quit and the company has apologised for its conduct and ordered an independent investigation.
"Trillian staff completed all the work allocated to them by McKinsey and billed for the work authorised and approved by Eskom," Trillian said in an e-mailed response to questions. "Trillian is unaware of any concerns which were raised by McKinsey with Eskom. 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."
While the US company has denied being involved in any corruption, it has started an internal probe into its dealings with Trillian.
"This undoubtedly reflects badly on Eskom," said Corruption Watch executive director David Lewis. Even so, it did not "allay our profound suspicions about McKinsey", he said.
Corruption Watch is planning to ask the US Department of Justice to probe McKinsey, while Public Enterprises Minister Lynne Brown has told Eskom to investigate taking legal steps against the consultant and Trillian. The DA has filed charges of fraud, racketeering and collusion against the US firm and said it also planned to contact the US Department of Justice about the work for Eskom.
In order to keep its consulting contract with Eskom, McKinsey was required to have a so-called supplier development partner and agreed to work with Trillian. The two companies could have earned more than R7bn from the state utility over the duration of the contract. By the time McKinsey stopped working with Trillian in about June 2016, the US firm had earned a fixed fee of R70m while its partner was paid about R30m, according to a person familiar with the payments.
McKinsey also earned about R900m for meeting performance targets, the person said, asking not to be identified as the payments had not been made public. Eskom has said it paid Trillian R495m, with some of that coming after McKinsey’s letter.
Focusing on Trillian’s ultimate ownership and how this may conflict with its role as an adviser to Eskom, the McKinsey letters said that the contractor did not answer the firm’s questions. The correspondence is signed by senior McKinsey executives.
Numerous separate discussions were held by McKinsey and Wood, who orally offered "partial information" concerning Trillian’s shareholders and directors, according to the letters. Singh was placed on leave in July after he was linked to a series of deals involving the Gupta family as well as Trillian and was suspended last week pending a disciplinary hearing. He has denied wrongdoing.
"We are looking into all these issues to determine their veracity," Eskom spokesman Khulu Phasiwe said by phone. "In due course, the Eskom board will report how far it has progressed with its investigation."