Final Report Eskom Inquiry-28-NOV
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REPORT OF THE PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES ON THE INQUIRY INTO GOVERNANCE, PROCUREMENT AND THE FINANCIAL SUSTAINABILITY OF ESKOM, DATED 28 NOVEMBER 2018 The Portfolio Committee on Public Enterprises has conducted an oversight inquiry into governance, procurement and the financial sustainability of Eskom as per its resolution of 21 June 2017. The Portfolio Committee reports as follows: 1 | P a g e Part A: Overview of the Portfolio Committee Enterprises Oversight inquiry into Eskom…... 2 1.1 Background to the Inquiry…………………………………………………………………….... 4 1.2 Terms of Reference……………………………………………………………………………. 4 1.3 Committee membership………………………………………………………………………... 5 1.4 Process of the Inquiry………………………………………………………………………….. 6 1.5 Conditions that the Committee worked under…………………………………………………. 6 1.6 Laws, Regulations and Standards applicable to Eskom……………………………………….. 7 2 Part B: Summary of Evidence………………………………………………………………... 10 2.1 Overview of Committee’s Inquiry into Eskom………………………………………………… 10 2.2 Witnesses called to testify……………………………………………………………………… 10 2.3 Documentation presented to the Committee…………………………………………………… 11 2.4 The Tegeta Contracts………..…………………………………………………………………. 13 2.5 Eskom and the Trillian Saga…………………………………………………………………… 40 2.6 Eskom and the TNA Contract………………………………………………………………….. 72 2.7 Eskom’s arrangement of Brian Molefe’s Resignation and Pension…………………………… 83 2.8 Eskom’s governance…………………………………………………………………………… 105 2.9 Conclusion………………………………………………………………………………............121 3 Part C: Findings………………………………………………………………………………. 122 3.1 Eskom served the interests of private firms and individuals.…………………………………... 122 3.2 Brian Molefe’s resignation, reinstatement and “early retirement”…………………………….. 123 3.3 Access to information………………………………………………………………………… 123 3.4 Inconsistent and misleading information provided to the Committee…………….…………… 124 3.5 Failure to maintain clear lines of accountability in the Eskom Board and management ……… 125 3.6 The developmental role of Eskom ……………………………………………………………... 127 3.7 The Eskom Contracts ………………………………………………………………………….. 127 3.8 Loss of capacity and institutional memory ……………………………………………………. 129 3.9 The responsibility to uphold good governance………………………………………………… 130 3.10 The lacklustre performance of the Shareholder …...………………………………………. 132 3.11 Questionable awarding of contracts………………………………………………………... 133 3.12 Mr Koko’s disciplinary hearing……………………………………………………………. 134 3.13 Confirmation of State of Capture report’s findings and observations……………………... 134 3.14 Weakening of institutions…………………………………………………………………. 136 2 | P a g e 4 Part D: Recommendations…………………………………………………………………… 137 4.1 Changing context at Eskom……………………………………………………………………. 137 4.2 The resignation, reinstatement and “early retirement” of Brian Molefe……………………….. 137 4.3 Challenges the committee encountered when it was seeking information from Eskom……….. 137 4.4 Witnesses in senior leadership positions at Eskom who presented conflicting evidence……… 138 to the Committee 4.5 Concerning governance………………………………………………………………………… 139 4.6 Concerning the contracts identified in the findings……………………………………………. 139 4.7 Regularising previous decisions……………………………………………………………….. 140 4.8 Financial management………………………………………………………………………….. 140 4.9 The loss of experienced leadership and staff with integrity…………………………….……… 140 4.10 The undermining of the of the principles and structures that ensure good governance…… 141 4.11 Strengthening oversight capacity and clarifying the role of the Shareholder…….………... 141 4.12 Strengthening the powers of parliament to hold individuals and institutions accountable…142 4.13 Report to the Zondo Commission…………………………………………………………. 142 4.14 Monitoring and Implementation…………………………………………………………….142 3 | P a g e 1 Part A: Overview of the Portfolio Committee on Public Enterprises Oversight Inquiry into Eskom 1.1 Background to the Inquiry The Portfolio Committee on Public Enterprises (“the Committee”) held a meeting with the Eskom Board on 23 May 2017 to receive a briefing on the following: • the process followed in the reappointment of the former Group Chief Executive Officer (GCEO), Mr Brian Molefe; • the determination of retirement package by the Board to the former GCEO; This followed widespread concern from the Committee and the public about the Eskom Board’s ability to provide effective leadership to the national electricity utility. The Committee noted that there was prima facie evidence that Eskom’s primary mandate as a national power utility had been compromised owing to weakened governance and management structures and systems. , which ultimately contributed to the Board’s inability to discharge its fiduciary responsibilities. There appeared to have been flouting of governance rules, laws, codes and conventions. This collective conduct, inter alia: • rendered Eskom potentially financially unsustainable due to irregular procurement, mismanagement and non-compliance with existing policies; • saw the purging of highly qualified, experienced and skilled senior staff members in violation of human resource management policies and procedures. In some instances, these purged staff members were replaced, without due consideration for, or compliance with, established recruitment policies. • facilitated the resignation, reappointment and retirement package for Mr Molefe, in violation of to the Eskom Pension Fund rules. On 21 June 2017, the Committee unanimously resolved to institute an inquiry into the matter of Mr Molefe’s retirement package and reappointment as Eskom GCEO. The Committee also received a letter from the National Assembly House Chairperson: Committees, Oversight and ICT requesting it to investigate the allegations of state capture reported in the media and in the “#GuptaLeaks” emails. The Committee instituted the oversight inquiry in line with the mandate of Parliament as articulated in section 55 of the Constitution read together with Rules 167 and 227(1)(b)(iv) and (c) of the National Assembly. 4 | P a g e 1.2 Terms of Reference The inquiry will investigate governance, procurement and the financial sustainability of Eskom. The inquiry will look into amongst others: i. Appointment of board members and executive management ii. Early retirement/reappointment of Mr Brian Molefe iii. Alleged procurement irregularities: a) Eskom’s alleged role in ensuring Tegeta was able to buy Optimum Coal Holdings a. Eskom’s award of an estimated R11.7 billion worth of coal-supply contracts at inflated prices to Tegeta Exploration and Resources (Pty) Ltd between 2015 and 2016. b) Eskom’s conclusion of a R43 million contract with the Gupta’s media company, TNA (Pty) Ltd. c) Eskom’s payment to Trillian Capital Partners (Pty) Ltd of over R400 million for management consulting and advisory services. iv. Allegations of impropriety regarding Eskom’s Acting CEO, Matshela Koko v. Financial stability of Eskom vi. Any other related matter The Committee inquiry would assess compliance into the following legislation: (a) Public Finance Management Act, 2002 (b) Eskom Conversion Act, 2012 (c) Companies Act, 2008 (d) Pension Funds Act (e) Any appropriate legislation applicable to the inquiry 1.3 Committee membership i. Thirteen members of Parliament were selected to serve on the Committee, six from the African National Congress (“ANC”), two from the Democratic Alliance (“DA”), one from the Economic Freedom Fighters (“EFF”), one from the African Christian Democratic Party (“ACDP”), one from the Inkatha Freedom Party (“IFP”), and one from the United Democratic Movement (“UDM”). 5 | P a g e ii. The following members were selected to serve on the Committee 1: Hon. D. Rantho, MP (ANC); Hon. M. Tseli, MP (ANC); Hon. M. Gungubele, MP (ANC); Hon. P. Gordhan, MP (ANC); Hon. Z. Luyenge, MP (ANC); Hon. G. Nobanda, MP (ANC); Hon. N. Mazzone, MP (DA); Hon. E. Marais, MP (DA); Hon. M. Dlamini, MP (EFF); Hon. N. Shivambu*, MP (EFF); Hon. N. Singh, MP (IFP); Hon. N. Kwankwa, MP (UDM); and Hon. S. Swart, MP (ACDP). iii. Hon L. Mnganga-Gcabashe, MP (ANC) was elected as the Portfolio Committee Chairperson after the Inquiry had commenced and participated in the proceedings as a member of the Committee. 1.4 Process of the Inquiry The Committee unanimously elected Hon Z. Rantho, MP as its Chairperson on 15 November 2016 and adopted the process and approach that the inquiry would follow. The Committee conducted its hearings in compliance with the requirements of fairness and in terms of its mandate provided for in sections 56, 58 and 59 of the Constitution of the Republic of South Africa, Act 108, 1996 (“the Constitution”) and as further set out in the rules of the National Assembly. As required by the Constitution, the Committee conducted its processes in an open and transparent manner with its meetings open to the public. Witnesses were summonsed to appear before the Committee in terms of sections 14, 15 and 16 of the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act, No 4 of 2004 (“the Privileges Act”). Adv. Ntuthuzelo Vanara was appointed as evidence leader to assist the Committee to gather evidence and to lead witnesses during the inquiry. 1.5 Conditions that the Committee worked under 1.5.1 Parliament and by extension the Committee, have both the power and the duty to hold the Executive and State organs to account and to ensure that their constitutional and statutory obligations are properly executed. This responsibility is an incident of the rule of law and the constitutional values of accountability, responsiveness