State capture: SAA loses out on 2-million litres of fuel a month as music promoter fails to deliver
A little-known company that was awarded a multimillion-rand contract to supply fuel to SAA hasn't delivered since October last year.
This means that the airline has been short of 2-million litres of fuel a month - although this amount is small enough to not have caused any major problems.
This was testimony at the state capture inquiry on Tuesday.
The company, EML Energy, owned by Pretoria music promoter Eldridge Motlhake, was granted a contract to supply about 2-million litres of Jet-A1 fuel to SAA last year, said SAA head of fuel management Mark Vaughan.
The Sunday Times previously reported that EML stood to make up to R67m a month from the deal.
The commission is in the process of investigating how EML Energy first landed a deal with SA Express, which appointed the energy company to supply 18 times more fuel at Pilanesberg Airport than the airport could use.
The evidence will also focus on alleged fraud and corruption in the process of EML Energy securing funding from the Industrial Development Corporation (IDC) to supply fuel to SAA.
Outlining how EML Energy landed on SAA's books, Vaughan told the commission that in 2016 the airline's then board took a decision that 15% of all local jet fuel should be procured from a small black-owned entity. This was seen as a tool to develop a black-owned business to compete against large oil refineries in the airline fuel sector. It was envisaged that SAA would still procure 85% of its fuel from major refineries.
However, Vaughan said that the most logical place for a small entity to procure fuel to supply to SAA would be from the same major local refineries, who would then still stand to benefit.
SAA was willing to incur the costs of buying more expensive fuel from a small black-owned entity that would add a premium to the fuel it procured from the same refineries SAA had already contracted.
The board later moved that the 15% quota of overall fuel to come from the small black-owned entity should be increased to 20%.
The contract was valid for three years.
"Generally, fuel suppliers are reluctant to contract for longer than a year. The period of three years I believe would be to develop the supplier," said Vaughan, adding that 74 bidders had "responded satisfactorily".
One of those bidders was EML Energy, which had established a joint venture with Total to supply SAA with the fuel.
"There was a lot of back-and-forth. The then board did not approve the deal and there was an extension on existing suppliers granted, from January 2017 to June 2017. This persisted with month-on-month extensions until 2018," said Vaughan.
Then, in May 2018, SAA issued another request for proposal (RFP) for a one-year supply of jet fuel, starting on July 1.
"This time round, it was purely on a commercial basis. We weren’t looking at any transformation agenda; we were looking at the best price," said Vaughan.
Out of nine respondents, Sasol was placed as the top contender and EML as the fourth.
However, in June last year, SAA's bid adjudication committee recommended that EML - as well as the other bidders who tendered for the job - all be granted contracts to supply various amounts of fuel to SAA.
Vaughan said this was done to to spread SAA's risk between multiple suppliers.
"EML started supplying us for the first 10 days of July and thereafter they were unable to supply for the rest of the month. In August, EML approached us saying that its IDC guarantee would move from Total to Shell," Vaughan told the commission.
"Then, in September and October, they supplied us through their joint venture with Shell. The supply was given for two months on the pricing agreed to in the letter of award. After September they approached us again, saying they would be moving their supply back to Total.
"Since that point, we haven’t received anything from EML."
Vaughan said that because EML was supplying SAA with "only" 2-million litres of fuel a month, the airline did not occur any significant problems as result. Because SAA had cut a number of its unprofitable routes, reducing the need for large amounts of jet fuel, "to replace 2-million litres, in short, wasn’t a problem," he said.
Vaughan's testimony sets the stage for further evidence related to how EML Energy received funding from the IDC.
The state capture inquiry will continue with a new witness on Wednesday.