Public Enterprises Minister Lynne Brown has demanded an explanation from Eskom’s board for an agreement signed by acting CEO Sean Maritz to pay a R400m "sourcing fee" to an obscure company registered in the British Virgin Islands.
The deal was initiated by the utility’s suspended chief financial officer, Anoj Singh, early in 2017 and finalised by Maritz in October, despite Eskom’s legal advisers and the utility’s own staff flagging it as a disguise for a kickback that would add no value to Eskom.
"The minister has asked the board for a report on the agreement by close of business (on Friday)," her spokesman, Colin Cruywagen, said.
"Should any impropriety have been committed, she will take immediate and decisive action."
Business Day reported on Friday morning that Maritz had signed a "fee letter" with Huarong Energy Africa committing the power utility to pay R400m into a Hong Kong bank account of a company called Ideva International Group registered in the British Virgin Islands.
Business Day sent Eskom detailed questions seeking an explanation for the deal.
In a move reminiscent of its previous stance on the Trillian and McKinsey debacle last year, Eskom gave a single sentence in response: "Eskom has not made any payment to the company."
For the better part of last year Eskom had also insisted it had "not paid a cent to Trillian", before finally admitting it had illegally paid the Gupta-linked consultancy R600m and McKinsey R1bn.
When Business Day asked Huarong Energy Africa what it had done to justify charging a R400m "sourcing fee", and why it should be paid into an offshore bank account, the company promised to issue a joint statement with Eskom "addressing your questions".
The company’s fee was calculated as a 1.6% commission for a $2bn loan to be sourced by Huarang Energy Africa, ostensibly from its Beijing headquartered "parent company" China Huarong Asset Management.
But officials in Eskom’s legal and finance divisions who investigated the deal could find no link between China Huarong Asset Management and Ideva International, which is wholly owned by Huarang Energy Africa’s chairman Jianbao Chen.
Huarang Energy Africa is registered in Sandton and was set up as a special purpose vehicle solely to finance Eskom capital projects.
Three days after Maritz signed the agreement with Jianbao Chen on October 27, the company submitted an invoice for 60% of the fee amounting to $21.8m including VAT to be paid to Ideva International within three days. Eskom’s policy is to pay invoices 30 days after submission.
The invoice stipulates the payment must be made to Ideva International’s HSBC account in Hong Kong.
London-based law firm White & Case, which provided Eskom with an opinion on the deal, couldn’t find any evidence that China Huarong Asset Management held any beneficial interest in Ideva International and pointed out Huarang Energy Africa is not even listed as a subsidiary on the Chinese "parent" company’s website.
White & Case advised Eskom not to sign the deal as its terms were "onerous on Eskom, and ambiguous at best as to what is being offered".
The lawyers also took issue with the "unusually high" level of secrecy surrounding the agreement, which stipulated it be hidden from Treasury and other government departments.
Eskom’s own treasury and legal and compliance staff advised against signing the deal. They questioned what value Huarong Energy Africa was adding. In an e-mail to treasurer Andre Pillay, legal and compliance official Gabriela Palacios expressed concern at "the sudden appearance of a third party [Ideva], which Eskom is obliged to pay a facility fee".
Palacios also pointed out that documentation provided did not reveal the true shareholder’s identity and ominously wrote: "To be frank, does not look legit."
The deal also allows HEA to charge Eskom an additional fee $7.5m for each project once funds are released but without any performance clauses, and for the Chinese company to select and pre-approved contractors.
This means Eskom will have no say over who builds its power stations despite footing the bill.
Interest rate calculations, a security deposit and an early prepayment clause are all described as unusual and detrimental to Eskom in the White & Case opinion.
Huarang Energy Africa had previously sought political backing for the deal from Brown. In August 2017 it sent her an invitation letter to sign a co-operation agreement between Eskom and China Huarong Asset Management during the Brics summit held in China in September.
The request was later repeated by Eskom chairman Zethembe Khoza, who wanted the signing ceremony to take part in the presence of President Jacob Zuma and Chinese President Xi Jinping as part of the summit’s official proceedings.
Cruywagen confirmed this week that Brown had "supported Eskom board’s written request to sign a strategic co-operation agreement with Huarong Asset Management in September 2017".
"The agreement was high level and nonbinding, with no financial terms," Cruywagen said.
Support was conditional on Brown being provided with the proposed agreement and term sheet, "which to date the board has not provided".
For the record, Brown does not negotiate commercial agreements on behalf of state-owned companies, she did not attend the Brics summit in Xiamen — and had never met Jianbao Chen, Cruywagen said.