Singh signed secret R400m raising fee
The money was to go to an obscure offshore entity for raising a $2bn loan from China to build or refurbish power stations
Suspended Eskom chief financial officer Anoj Singh signed a secret deal binding the cash-strapped utility to pay a R400m "signature fee" to an obscure offshore entity for raising a $2bn loan from China to build or refurbish power stations.
Correspondence seen by Business Day suggests that officials in Eskom’s finance and legal divisions suspected the fee might be a disguised kickback.
Eskom was invoiced for a portion of the fee, but it has not been disbursed.
In entering into this transaction with Huarong Energy Africa in March 2017, Singh ignored legal advice by an independent law firm and other officials in the power utility, who said the terms were onerous and "ambiguous at best".
Documents, including a "term sheet", signed by Singh, a legal opinion from law firm White & Case and correspondence among Eskom officials — all seen by Business Day — suggest proper supply chain and approval processes were not followed and that the transaction could be deemed unlawful, raising the spectre of a rerun of the Trillian and McKinsey debacle.
The fee agreement was finalised on October 27 2017 and signed on behalf of Eskom by acting CEO Sean Maritz and by Jianbao Chen, chairman of Huarong Energy Africa.
Three days later, Huarong submitted an invoice for
$21.8m, payable on November 2, even though Eskom’s policy
is to pay invoices 30 days
The $21.8m fee makes up 60% of the total, as agreed in the "fee letter" with Maritz.
Sources said Eskom treasury officials were pressured to process the payment earlier in January, even though the circumstances surrounding the deal remained unclear.
Business Day sent detailed questions to Eskom on Thursday, requesting clarity on the payment, but the utility responded with a single line: "Eskom has not made any payment to the company."
It did not explain why Eskom had signed the agreement against the legal advice of its own officials. The $1.5bn to $2bn loan was supposed to come from the state-owned China Huarong Asset Management company, headquartered in Beijing, but inexplicably the "signature fee" would go to an HSBC bank account in Hong Kong, possibly without the knowledge of Huarong Energy Africa’s "parent company" in China.
The account belongs to an obscure company called Ideva International Group, registered in the British Virgin Islands, and appears to have no link with the Chinese asset manager.
Ideva’s sole shareholder is Chen, the chairman of Huarong Energy Africa, which issued the invoice to Eskom and is registered in Sandton.
It was created for the sole purpose of this project.
Singh’s term sheet describes Huarong Energy Africa as a subsidiary of China Huarong Asset Management.
The terms include a once-off fee of 1.6% of the total value of the loan, which comes to $32m for a $2bn loan.
Eskom would also pay an immediate penalty equivalent to 0.2% or $3.2m of the loan value if the deal was cancelled.
Read the documents in full below.
The terms allow Huarong Energy Africa to charge Eskom an additional fee of $7.5m for each project once funds are released but without any performance clauses, and to select and preapprove contractors.
This meant Eskom would have no say over who builds its power stations despite footing the bill.
"This appears onerous [on Eskom]," said White & Case’s Adrian Lawrence in a note to Eskom treasurer Andre Pillay on April 18.
"Our strong advice is not to sign at this stage."
White & Case said the term sheet was "ambiguous at best".
"This is particularly the case given it is expressed to be binding and provides for a high cancellation fee, which is highly unusual."
The firm also took issue with secrecy clauses that prohibit disclosure of the terms to other government entities, including the Treasury.
There was no evidence the firm would commit any of its own funds, suggesting the company was merely inserted as a middleman to charge a "signature fee" without adding value, the legal opinion said.
Other Eskom legal and Treasury officials also found the deal deeply problematic for the utility, according to e-mail correspondence, but their concerns, raised repeatedly, were ignored.
"Not convincing at all [that] this is the party to which the money must be paid", wrote Eskom treasury official Sincedile Shweni to Pillay.
In another e-mail to Pillay, legal and compliance official Gabriela Palacios also 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 omniously wrote: "To be frank, does not look legit."
Another source told Business Day yesterday: "We suspected it was a kickback. There was no rational reason for paying
Despite receiving these dire warnings Singh signed the "onerous" and "ambiguous" deal on March 14 2017 and Maritz signed the fee letter on October 27.
Asked what value Huarong Energy Africa was bringing to the table for its R400m fee and why it should be paid into an
offshore bank account, the company said that it was "unfortunate that you have asked me for detailed information which is the subject of a confidentiality arrangements which are common place in commercial transactions of this nature".
"Moreover you have asked me to respond in a near-impossible time to meet your deadline. The only inference I can draw from this is that you have predetermined the story without a bona fide intention of soliciting the facts," the company said.
"In the circumstances, I will have to reserve my rights and that of HEA [Huarong Energy Africa] should your story result in me or HEA suffering any damages or loss."
The company said that it planned to issue a joint statement with Eskom "addressing your questions".