Eskom's Dongfang deal did not meet empowerment requirements, says B-BBEE Commision
Power utility asked to audit some of its deals from 2014 to check if they comply
Eskom, which continues to struggle to stay afloat, has been dealt another blow with the finding that a contract it awarded for the Duvha power station did not comply with empowerment requirements.
The Broad-Based BEE (B-BBEE) Commission found that the embattled power utility failed to comply with the B-BBEE Act in awarding the tender for the Duvha power station to Chinese-owned Dongfang, which did not meet empowerment requirements.
The commission, which monitors Empowerment Act progress and compliance, asked the utility to conduct an independent audit of some of its deals from 2014 to ensure they complied with the requirements.
Eskom, with debt fast rising to R500bn, has been flagged by ratings agencies as the biggest risk to SA’s economy.
It emerged in 2017 that the power utility sneaked an inflated advance payment of at least R600m to Dongfang for the controversial R4bn tender to supply a new boiler at its Duvha power station in Mpumalanga. The station consists of six 600MW units with a total installed capacity of 3,600MW.
Eskom decided to award the tender to the state-owned Chinese company even though its offer was R1bn more than rival bids, just days after the bids were reviewed at the last minute by Trillian, a Gupta-linked advisory firm.
Trillian at the time repeated Eskom’s prior argument that although Dongfang’s price tag was much higher than those of its rivals it was less risky.
Rival bidders including General Electric (GE) accused Eskom of rigging the tender and approached the high court in Johannesburg to interdict the power utility from implementing Dongfang’s contract until it had been reviewed and adjudicated again. They were successful in obtaining the interdict, but the main application is still pending.
Now the commission has found that Eskom failed to comply with section 10(1)(b) of the B-BBEE Act in awarding the tender to Dongfang, an entity with zero black ownership, when the tender required at least B-BBEE Level 4, which calls for elevated black ownership, among other targets.
The B-BBEE Act was amended in 2013 to make it mandatory for organs of state and public entities to implement it — and not only when they choose to do so.
“Therefore, in addition to the recommended contract cancellation and the independent audit by Eskom Holdings , we recommended investigations in respect of officials that were involved in this tender process so that decisive action can be taken to prevent this in future. Of concern also is the possibility that this tender process may have been deliberately compromised to favour a specific entity,” the commission said.
It said it has since referred the findings to the public enterprises minister and the director-general of the National Treasury for further consideration.
In an e-mailed response to questions on Wednesday, Eskom said: “Please note that we are in the process of considering all of the findings and recommendations contained in the report with a view to ensuring that Eskom complies with all its obligations in terms of applicable law.”
Eskom, which supplies more than 95% of SA’s electricity, has struggled with maintenance issues and design flaws at new power stations Medupi and Kusile. It has blamed the main contractor for the boilers, Japanese conglomerate Mitsubishi Hitachi Power Systems Africa. (MHPSA).
Eskom had to resort to stage four load-shedding earlier in 2019 as it could not meet demand, a move that crippled large sections of the struggling economy.