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Extract: ‘Sabotage’ by Kyle Cowan

03 June 2022 - 11:41
'Sabotage' is a story of conspiracy and subterfuge at SA’s ailing power utility.
'Sabotage' is a story of conspiracy and subterfuge at SA’s ailing power utility.
Image: Supplied

In May 2022, evidence emerged of sabotage at three Eskom power stations. Cables and an air pipe were cut at Tutuka, crucial copper parts were removed from three units within the heart of Hendrina, and an attempt was made to take a unit at Matla offline. Sabotage at Eskom is real, the utility proclaimed.

At the time, Kyle Cowan’s book on Eskom, aptly titled Sabotage, was on the printing press.

Cowan’s book begins with an incident in November 2021 when unknown saboteurs toppled a strategic pylon near Lethabo power station in Free State, almost causing the country to plunge into stage 6 load-shedding.

Eskom CEO André de Ruyter declared: “This was clearly an act of sabotage and I think we can call it as such.”

Who is behind these attacks, and what is their goal?

Since his appointment in January 2020, De Ruyter has faced intense opposition from within the power utility as he attempts to clean up corruption and return the electricity company to a semblance of its former glory. He is not alone.

COO Jan Oberholzer and other trusted allies in Eskom have also come under intense fire.

From forensic investigations and botched probes to accusations of racism, De Ruyter and Oberholzer have spent significant amounts of time fending off allegation after allegation. Amid this onslaught, it has become clear their enemies will take any measures necessary to have them removed from office, and the latest incidents show the campaign is not at an end.

Based on exclusive interviews with De Ruyter, Oberholzer, Eskom chairperson Prof Malegapuru Makgoba and other key figures, Sabotage is a story of conspiracy and subterfuge at SA’s ailing power utility, uncovering the power struggles that threaten the country’s survival.

Kyle Cowan is an award-winning journalist. He was twice named joint winner of the prestigious Taco Kuiper Award for investigative journalism and works at News24 as part of its in-depth investigative team.

EXTRACT:

Days after arriving at Eskom, De Ruyter set in motion a series of events that would come to dominate his first two years in office.

It started on 10 January 2020 when he attended a meeting of the investment and finance committee (IFC), a subcommittee of the board that considers submissions on major financial decisions and makes recommendations to the overall board. He had noticed the IFC was being asked to consider a budget increase for a five-year fuel oil tender — an increase of R4bn from R14bn to R18bn. It was one of the biggest expenditure items in Eskom’s annual procurement spend, which is more than R140bn.

In his time at Sasol, which has historically been Eskom’s largest fuel oil supplier, De Ruyter knew that “handsome profits” were made by selling the stuff, essentially a by-product of the oil-refining process, to the power utility.

Fuel oil, or heavy fuel oil, is used as a primer when the boilers of generation units are started up — the fuel oil is burned before coal dust is introduced. The more start-ups a unit has, after a breakdown or coming back online after repairs or maintenance, the more fuel oil is used. Per litre or per ton, fuel oil is not expensive, but Eskom’s fleet of 15 coal-fired power stations all use fuel oil — and lots of it. Between the 2013 and 2021 financial years, Eskom spent R24.8bn on 3.5-billion litres of fuel oil, a significant share of which was paid to Econ Oil, a company owned and operated by Nothemba Mlonzi, an attorney and one-time acting judge.

Econ Oil — born of SA’s noble procurement policies, introduced to provide recourse to those who were historically excluded from the economy, namely black economic empowerment — has its origins in a conference attended by Mlonzi around 2001. Among the presenters at the conference, held in Durban, was a senior Eskom official, Thandi Marah.

Mlonzi had by this stage already registered Econ Oil and was looking around for opportunities. After the conference, she sought out the Eskom official, whose presentation apparently spoke to her interests. The official facilitated a meeting with Eskom’s technical team, who explained to Mlonzi that in order for Econ to qualify to submit a bid, she would have to seek the backing of a “South African oil major”, have a technical person in her team who understood not only the product but also how Eskom did business, and obtain an ISO certification. They gave her the name of Johan Loots, who had worked for Sasol for 35 years, managing its fuel oil contract with Eskom. Sasol had been the power utility’s sole supplier of fuel oil since 1987. According to Mlonzi, Eskom “assisted” Econ Oil in concluding a deal to transport fuel oil on behalf of Sasol.

As a result, Econ started earning money from Eskom in 2003, initially working out of offices located within Sasol. In 2012, Econ got its big break when it was awarded a major five-year fuel oil supply deal, which saw the company responsible for the majority of Eskom’s 15 coal-fired power stations. The following year, Econ built its own blending plant in Marble Hall, Limpopo, to which then public enterprises minister Malusi Gigaba was invited. (It would later emerge that Marah forwarded a letter from Mlonzi requesting the minister’s presence to the department’s director general.)

In mid-2016, with the 2012 contracts due to expire on 30 March the following year, Eskom started the tender process to place contracts for a further five-year period, from 2017 to 2022. A new tender was advertised in August 2016, but after eight months of technical evaluations of the more than 120 responses, Eskom discovered it had given potential suppliers the incorrect volumes for various power stations on which to quote prices. As a result of this error, the board tender committee scrapped the entire tender and Econ was kept on as a supplier to most of the utility’s power stations on a month-to-month basis. On 17 May 2017, the board tender committee gave Eskom officials the green light to issue a closed tender to Econ Oil and the utility’s other fuel oil supplier, Fuel Firing Systems (FFS) Refiners, for a one-year contract to allow time and space for a new long-term contract to be placed after another thorough tender process.

But other suppliers came onboard during the closed tender process and, as a result, Econ lost five power stations to FFS — all told, Econ was allocated nine, while FFS increased its supply from two power stations to seven (one station was shared between them). Mlonzi met with Eskom days after the 12-month tender was awarded to complain that Econ had lost 68% of the volume it had previously supplied and that officials were not taking into account the infrastructure in which Econ had invested over the years.

The new 12-month contract was set to expire on 30 June 2018, but Eskom once again failed to meet the deadline. The award of the tender would only be decided at the next board meeting on 16 October. For reasons that will become clear in the following chapter, the tender was ultimately cancelled, paving the way for Econ to be awarded further contracts to supply fuel oil to Eskom during 2019. It also bid and was ultimately awarded an R8bn portion of the new five-year supply contract that was eventually concluded in October 2019.

Between 2003 and late 2018, Eskom paid Econ Oil more than R15bn for fuel oil. Econ was not a manufacturer but effectively played the role of middleman — buying most of its fuel oil from Sasol and other local refineries (and apparently importing some from a company in Dubai) and on-selling it to Eskom, with an undisclosed profit margin, according to court papers. Econ and Mlonzi strongly dispute this. Econ also supplied Eskom with diesel over the years, but the value of those contracts is unknown. What concerned De Ruyter, however, was not that Econ was up for an R8bn share of the new five-year supply deal, but that the budget increase was simply not properly motivated and, more importantly, Eskom did not have the money to increase its expenditure by R4bn.

Before meetings, the agenda and supporting documents are circulated to all attendees, and De Ruyter looked at the motivation for the budget increase and was immediately concerned. He noted down some questions about the submission, including around the information provided regarding pricing — he felt it was far too vague for the committee to consider properly.

During the meeting, De Ruyter voiced his concerns. But there was a problem — the chairperson of the IFC, former MTN CEO and close ally of President Cyril Ramaphosa, Sifiso Dabengwa. “Mr Dabengwa, the chair of the IFC, was not prepared to accommodate much debate on the matter,” De Ruyter said in court papers filed almost exactly a year later.

According to De Ruyter, he told the committee that there was no budget to accommodate the increase. “But the response was, yes, but let’s expand the value of the contract anyway.” He told me that Dabengwa, whom he had never met or interacted with meaningfully before that day, dismissed his concerns with “almost disdain”.

“Typically, in a listed entity, the CEO is given airtime at a board subcommittee meeting. So I was quite taken aback, and I thought is this how it works? You know, is the CEO just supposed to be quiet? Because I said, hang on, I’m sure we can save money here. We were paying too much, I felt, my gut feel told me something was off. And Dabengwa was sort of just saying this is what we are gonna do.” The response to his queries, De Ruyter said, was along the lines of “you will understand, in the fullness of time, that this is how we do it”.

“I remember walking out of that and thinking, this is different.”

It was the first incident that would alert De Ruyter to the enormity of the mess he had walked into, he said. He described what followed in his affidavit filed in the high court a year later: “I thus formed the immediate impression that Eskom was not sufficiently concerned about keeping the costs of fuel oil down. I was fortified in this view when I considered the IFC documents, which were far too perfunctory, and did not offer a proper analysis of pricing.”

The IFC did not approve the budget increase, but De Ruyter did not leave the matter there. He took immediate action to start investigating the tender and his first step was to ask Solly Tshitangano, the CPO and one of the three Eskom officials who had approved the memorandum to the IFC seeking the budget increase, a series of probing questions on 12 January 2020 over the tender process and award.

Tshitangano responded by asking De Ruyter to help him appoint experts to assist Eskom to evaluate and analyse the tenders and supplier information, which, he claimed, he had been unable to do for a year. It was extremely worrying; essentially, Tshitangano was conceding that the utility, which had just resolved to award a R14bn, five-year tender to various suppliers, did not have the technical expertise onboard to properly evaluate the information that led to the awards.


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