SIU tells parliament of ‘organised crime’ behind coal contracts at Eskom

Special Investigating Unit (SIU) boss Andy Mothibi has told MPs that his unit uncovered “organised crime” at Eskom and employees at the power utility scheme and collude to fleece the company.

He said conflict of interest policies and other requirements were deliberately contravened by officials who continued to do business with the entity.

Crooked officials hid behind family members and friends who they use as directors of their companies that do business with Eskom. In some cases, they go as far as approaching complete strangers to set up subcontractors and bank accounts to channel funds through.

Sometimes Eskom vendors pay kickbacks to the company’s employees by paying their creditors directly, including paying their children’s school fees directly to schools.

“We make observations based on investigations and we then engage extensively with Eskom management to ensure that these observations are understood and assist in the improvement of business processes, risk management and all other related areas,” Mothibi told members of parliament’s standing committee on public accounts (Scopa) on Wednesday.

Eskom regulates conflict of interest of its employees through policies and procedures that require officials above a certain level to annually declare all directorships, memberships, details of any related or interrelated people or other associates who do business with Eskom, whether a conflict exists or not.

Eskom officials may not, without prior written approval of the manager concerned, become involved in private work for remuneration outside Eskom, accept a directorship in a company, obtain membership of a close corporation or a partnership or a joint venture. They are also prohibited from having a personal or other interest in an Eskom contract, as a supplier, adviser, or by virtue of being a director or owner of a business, or in any other capacity. This includes third-party related transactions with an indirect link to an Eskom contract.

It is imperative to test coal on arrival at power stations and before it is mixed with coal from other mines.

But the SIU found that these policies and procedures were wantonly contravened, said Mothibi.

The links could only be identified from a review of bank accounts, email communications and cellphone records, among other things, he said.

The SIU identified coal procurement and transportation as being of concern. Technical experts voiced concern about coal quality.

“They still make sure that coal is delivered, and no wonder the machinery in the system is affected as negatively as it is — that’s close to sedition.”

Technical reports have questioned the suitability of coal from the Brakfontein mine for the Majuba power station and the mine’s ability to produce required quantities, but despite this concerns a contract was entered into with Tegeta at an inflated price.

Laboratory testing processes were interfered with by submitting coal that was not from the Brakfontein mine, he said.

“The deliberate actions of Eskom officials made sure that samples for testing were obtained in the absence of Eskom observers, and facilitated the swapping of samples by transporting samples to the laboratory in a truck that was not fitted with the contractually required tracking device.”

He said the mine delivered noncompliant coal from areas not stipulated in the contract. This was achieved by manipulating precertification processes at the mine. Once the coal is delivered at the power station, no further quality checks are conducted before coal from different origins is mixed.

“It is imperative that coal be tested on arrival at power stations and before being mixed with coal from other mines. This is not taking place,” said Mothibi.

He said that to circumvent controls regulating coal transportation pricing, Eskom officials colluded with mines by entering into coal supplier agreements where coal prices were inflated to accommodate transportation costs.

Transportation contracts were then entered into between mines and transporters linked to Eskom officials. Because transport contracts are between mines and transporters, the pricing is not visible to Eskom.

Mothibi said they also found that mines and Eskom officials colluded with transporters and/or truck drivers to mix poor quality coal from certain mines with good quality coal from other mines, ensuring that the contractually required quantities are delivered to power stations.

Since coal quality is often not tested once delivered to power stations, it is in not possible to identify the source of substandard coal, he said.

Mothibi said Eskom can only mitigate the risk of this happening by installing automated real-time combustion testing facilities that can link test results to a specific truck and therefore source as soon as the coal arrives at a power station and before offloading.

This would ensure that substandard coal can be linked and returned to the mine of origin, while Eskom will not be liable to pay for the coal or incur damage to its equipment due to over-abrasive bad coal, he said.

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