REPORT
for
ESKOM
on
ACCUSATIONS AGAINST THE GROUP CHIEF EXECUTIVE
Wim Trengove SC
14 July 2020
THE PURPOSE OF THIS REPORT
1 An Eskom director, Mr Sifiso Dabengwa, accused its Group Chief Executive, Mr André De Ruyter, of misleading the Eskom board at its meeting on 25 March 2020. Eskom instructed me to investigate Mr Dabengwa’s accusations and determine whether they are justified. I am also asked to address ancillary matters depending on my conclusion on the main issue.
BACKGROUND
1 In May 2019, Eskom issued an invitation, called BID CORP 4786, for the supply of heavy fuel oil to its power stations for five years. In October 2019, Eskom’s Board approved awards of contracts to three suppliers, Sasol Ltd, Econ Oil & Energy (Pty) Ltd and FFS Refiners (Pty) Ltd. The budget for the supply of the oil was R14b.
2 In December 2019, Eskom’s Procurement Officer applied to its Executive Committee for the budget for the contract to be increased to R18b. The application came before the Investment and Finance Committee on 10 January 2020. The Committee turned down the application. Mr De Ruyter, who had taken up office as Group Chief Executive days earlier, attended the meetings. He was concerned about the quality of the information provided in the application for the increase in the budget of the heavy fuel contracts and decided to investigate the matter.
3 Mr De Ruyter investigated the award of the heavy fuel contracts and concluded that they had not been properly awarded. I shall later describe his investigation and the information it brought to light.
4 At the first board meeting Mr De Ruyter attended, on 16 January 2020, he outlined a number of “main buckets” on which he proposed to focus. One of them envisaged cancellation of the fuel oil contracts:
“Look at a strategy with the intent to cancel the fuel oil tender owing to allegations of fraud and corruption with some fuel oil suppliers and Eskom employees and consider a new strategy for the procurement of fuel oil by Eskom for all its coal-fired power stations directly from the refineries, as a cost saving measure is being considered.”1
5 Mr De Ruyter asked Eskom’s Interim Group Executive: Legal and Compliance, Mr Bartlett Hewu, to prepare a memorandum for submission to the board to inform it of the serious issues concerning the fuel oil contracts and to recommend that it consider cancellation of the contracts. Mr Hewu prepared such a memorandum dated 7 February 2020. Mr De Ruyter sent it to the Interim Chair of the board, Professor Makgoba, for distribution to the members of the board. The memorandum recommended that the board resolve to cancel the fuel oil contracts on grounds summarised as follows:
“33.1 detected possible collusive practices by bidders;
33.2 breaches of section 4(1)(b) of the Competition Act by the bidders;
33.3 obscure pricing methodology and formula employed by the bidders in their bid submissions;
33.4 breaches of the principles of fairness, transparency, equitability, competitiveness and cost-effectiveness as enunciated in section 217 of the Constitution;
33.5 acute lack of requisite skills, competence and understanding of the fuel oil market by the cross-functional team that evaluated CORP 4786;
33.6 inconclusive report from the financial evaluation team regarding Engen’s bid; and
33.7 Non-adherence to the board approved strategy of 30 January 2019 of procuring fuel oil directly from the refineries.”2
6 On 13 March 2020 Professor Makgoba circulated a round robin resolution, at Mr De Ruyter’s request, for the cancellation of the fuel oil contracts. Professor Makgoba’s covering note motivated the proposal as follows:
“3. During the process it became evident that the cross-functional team that evaluated and adjudicated bid Corp 4786 has the acute lack of understanding, requisite skills and competence of the fuel oil market. There was possible anti-competitive practices between bidders for bid Corp 4786 in contravention of the Competition Act No 89 of 1998 including breaches of the Constitution and the Public Finance Management Act 1 of 1999 detected.
4. The board on 16 January 2020 endorsed the main buckets of focus for the short-term priorities for Eskom and approved the recommendations and mitigating measures tabled by the Group Chief Executive, in particular:
4.1 The cancellation of the fuel oil tender due to allegations of fraud and corruption between suppliers and Eskom employees and a new strategy for the procurement of fuel oil by Eskom as a cost-saving measure being considered directly from the refineries.
5. In accordance with the National Treasury regulation, dealing with the cancellation of tenders, clause 13(3) states “an Organ of State may only with the prior approval of the relevant Treasury cancel a tender invitation for the second time”.
6. The board is therefore requested to approve the cancellation of the Bid Corp 4786 and that the required approval be obtained from National Treasury.”
Professor Makgoba also referred to Mr Hewu’s memorandum which, he said, he had approved.
7 Two of Eskom’s directors, Mr Sifiso Dabengwa and Dr Pulane Molokwane, strongly objected to the proposal. They raised their objections in emails circulated to their fellow board members on 13 and 14 March 2020. The theme of their objections was that the grounds for the proposed cancellation were speculative and unproven and thus did not justify the proposed cancellation.3
8 Mr De Ruyter responded to some of the objections raised by Mr Dabengwa and Dr Molokwane in a “Key Findings” memorandum dated 19 March 2020. He recommended approval of the round robin resolution and summarised the reasons for doing so as follows:
“- The strategic objective of the Board as well as National Treasury of procuring directly from refiners to ensure optimal cost savings for Eskom was not achieved.
- No technical evaluations were done as part of the tender which in turn opens up Eskom to legal challenges once volumes are allocated.
- The financial evaluation team were unable to recommend the most cost-effective suppliers as a cost comparison could not be finalised.
- Exclusion of BP as a strategic partner will potentially lead to an additional lost opportunity to save considerable cost.
- Exclusion of Engen as a strategic partner mainly due to their pricing no being understood and poor negotiations.
- Optimal price and volume mix was not achieved and concluding contracts based on the work done will lock Eskom into a sub- optimal Five(5) year contract.”4
9 Mr Dabengwa challenged Mr De Ruyter’s motivation in an email on 22 March 2020. He said that Mr De Ruyter’s submission “does not bode well for the trust levels in management” and addressed Mr De Ruyter’s arguments one by one.
10 In the light of the opposition to the round robin resolution, Professor Makgoba took the matter to a board meeting on 25 March 2020. Mr De Ruyter and others spoke in favour of the resolution. Mr Dabengwa, Dr Molokwane and Professor Mongalo spoke against it. The proposal was put to a vote. It was carried by a majority of seven to three.
11 After the meeting, Professor Mongalo recorded the grounds of his dissent in a memorandum dated 25 March 2020. He summarised them as follows:
“4.1 It is my view that cancelling the contract based on unproven allegations of irregularity and / or fraud – which allegations have never been subjected to scrutiny before any competent authority (either internal or external to Eskom) – does not amount to a proper exercise of the fiduciary duties and the duty of care, skill and diligence applicable at common law and in terms of section 76(3) of the Companies Act, 2008.
4.2 Also, I am not convinced that based on the information presented before the board on the day the cancellation decision was made, there is a rational basis for believing that the decision is in the best interests of the company in accordance with section 76(4) of the Companies Act, 2008.
4.3 In the circumstances, I am convinced that supporting the cancellation of the contract does, in fact, amount to a breach of fiduciary duties and the duty of care, skill and diligence and also does not amount to a proper exercise of business judgement in accordance with section 76(4) of the Companies Act, 2008.”5
12 In a series of emails following the board meeting, Mr Dabengwa accused “management”, and Mr De Ruyter in particular, of misleading the board:
12.1 He put it as follows in an email to the board secretary on 25 March 2020:
“I would like to put on record my dissent from the board decision this morning cancelling BID CORP 4786. My reasons are as follows:
1. Specific information provided by management to the board to support the cancellation relating to the executive sourcing of oil product from refineries was false and unsubstantiated.
2. Specific information provided by management to the board to support the cancellation in relation of allegations of fraud and corruption had no relevance to BID CORP 4786 and was relevant to a previously cancelled tender, BID CORP 4403. These allegations were never tested and verified.
3. Statements made by management in relation to unethical practices, corruption and fraud against Econ Oil, unidentified Eskom employees with no evidence provided of such or actions any taken against guilty parties.”
(my emphasis)
12.2 Mr Dabengwa elaborated in an email to Professor Makgoba shortly thereafter also on 25 March 2020:
“As you can see from the email below, I am making an extremely serious allegation against management (the CEO and his team) of providing false information to the board in order to substantiate/motivate the cancellation of the tender. I am also indicating that information was provided to the board that had no relevance to the matter at hand, but provided as if it was specifically relevant to the tender that management was proposing to be cancelled; i.e. allegations of fraud and corruption were raised with respect to BID CORP 4786. No evidence of fraud and corruption was ever found or considered with respect to BID CORP 4786 so the submission is misleading.
Providing false or misleading information to the board is a very serious issue.”
(my emphasis)
12.3 Mr Dabengwa added the following in an email to Professor Makgoba on 3 April 2020:
“I raised the matter with you as the Chairman as it is a very serious allegation. I thus expect it to be independently investigated and concluded as such.” (my emphasis)
13 Mr Dabengwa’s accusations came up at the board’s next meeting on 29 April 2020. It was agreed that Mr Dabengwa would be given an opportunity to make submissions in support of his objections and that Mr De Ruyter would then be given an opportunity to respond. The board would thereafter decide how to proceed with the matter.6
14 Mr Dabengwa did not make a new submission in support of his accusations. He forwarded his complaints of 25 March 2020 to his fellow directors under cover of an email dated 29 April 2020 in which he said the following:
“1. Herewith is the email trail with all the relevant correspondence from myself on the matter discussed this afternoon.
2. This is not a matter of personal differences between myself and the CEO, and should not be relegated to such or just a misunderstanding.
3. On this matter, board members need to understand they are conflicted as they have already participated in decision making where I have alleged false information was provided to, so the issue of presenting any further to the board does not arise.
4. My view is the matter needs to be investigated and concluded by an independent party as per my email to the Chairman of 3 April 2020 and subsequently to the Chairs of Audit & Risk and Social Ethics and Sustainability on 15 April 2020.”
(my emphasis)
15 Mr De Ruyter responded to Mr Dabengwa’s accusations in a comprehensive memorandum on 28 May 2020.
16 Mr Dabengwa responded to Mr De Ruyter’s memorandum in a note on 8 June 2020. He crystallised the three issues on which, he said, Mr De Ruyter had misled the board:
“The objective and preliminary view would be that there has been a misrepresentation of the true status of the facts based on the following:
5.1 The GCEO has not provided any documentation to substantiate his averment that a resolution was adopted to procure heavy fuel oil from refineries only. The GCEO is accordingly hereby called upon to produce a minute of a board meeting that would lend credence to his averment. In the absence of the same the facts will speak for themselves;
5.2 The GCEO has failed to provide particularity as regard the “anti-competitive practices” which he has alleged. The GCEO is hereby called upon to provide a detailed report in this regard and to point out exactly which provisions of the Competition Act No 89 of 1998 have been breached and in which manner. He is similarly called upon to provide details in relation to the Constitution and the PFMA vis-à- vis the alleged “anti-competitive practices” or any other irregularities.
5.3 There has been bold and unsubstantiated allegations by the GCEO that there has been “fraud and corruption”. The GCEO is hereby called upon to provide particularity as regards the allegations of “fraud and corruption” that have been raise by him detailing in what manner the alleged “fraud and corruption” took place and when exactly did such instance/s of “fraud and corruption” take place including but not limited to details of persons/companies who participated. It would be prudent for the GCEO to provide documentary evidence of his allegations.”
Mr Dabengwa added that:
“Failure by the GCEO to specifically address the above requests will lead to the inference that his averments were made recklessly without due regard to proper administrative processes. Furthermore the conclusion that may then be arrived at is that there was a failure to discharge a proper duty of care.”
17 Dr Molokwane addressed an email to Professor Makgoba on 7 June 2020 in which she distanced herself from Mr Dabengwa’s accusations as follows:
“Secondly, I’ll refer to the very first part of the GCE’s response wherein reference is made to the fact that Mr Dabengwa and myself levelled allegations against him. Neither are these allegations I allegedly levelled stated nor addressed in the GCE’s response. I would like to state that I have never filed any complaint nor allegations against the CE. Mr Dabengwa was by no means representing me in any form. I am struggling to understand why this false narrative is being pushed and what it is meant to achieve.”
MY INVESTIGATION
18 The focus of my investigation was Mr Dabengwa’s accusations that Mr De Ruyter had misled the board. I accordingly sought to identify the information available to Mr De Ruyter to determine whether it supported his motivation of the resolution to cancel the fuel oil contracts.
19 I interviewed the board members Professor Makgoba, Mr De Ruyter, Mr Dabengwa, Dr Molokwane and Ms Nelisiwe Magubane. I also interviewed Mr Hewu, the author of the board memorandum of 7 February 2020.
20 I was provided with a great deal of documentation relevant to the matters under investigation over the period from late 2018 to the present. When I encountered missing documents, I called for them and they were duly provided.
21 I am satisfied that I ultimately gathered all the evidence necessary to assess whether Mr Dabengwa’s accusations against Mr De Ruyter were justified.
22 I have already quoted from Mr Dabengwa’s response to Mr De Ruyter’s memorandum on 8 June 2020. He identified three issues on which, he said, Mr De Ruyter had misled the board. They are the alleged board resolution of 30 January 2019; the alleged evidence of collusion between bidders; and the allegations of “fraud and corruption”. In my interview with Mr Dabengwa, he confirmed that his accusations were confined to these three issues.7
23 In his interview, Mr De Ruyter described his general response to Mr Dabengwa’s accusations. He said that he appreciated that not all the suspicions he had raised had been proven but that he honestly disclosed the available information to the board for the directors to make up their own minds:
“My view is that rather than my deciding to the nth degree what would be relevant or not, I disclosed all of the information and all of the facts that I had at my disposal at the time when I presented this request to cancel the fuel oil tender to the board. Where I was not certain of those facts I made it quite clear. For example a potential collusive activity between Econ Oil and Sasol in tendering, I said this is something that we need to investigate. So I put all the facts that I had on the table to the board and I left it up to the board to decide what they wanted to do with it.”8
“What I presented I honestly believed and still believe was relevant to the board arriving at a properly considered conclusion on the request that I put forward to the board. So I believe and still believe that what I presented was relevant and I don’t see the link between relevance, irrelevance and dishonesty.”9
24 I accordingly turn to consider the three matters on which Mr Dabengwa said Mr De Ruyter had misled the board.
THE BOARD RESOLUTION OF 30 JANUARY 2019
What Mr De Ruyter said
25 In his motivation of the resolution for the cancellation of the fuel oil contracts, Mr De Ruyter repeatedly made the point that the contracts had been awarded contrary to the strategy adopted by Eskom’s board on 30 January 2019 to procure fuel oil only from refineries. He put it as follows in his Key Findings memorandum of 19 March 2020.
25.1 In his description of the background, he referred to the board resolution as follows:
“the Eskom Board meeting held on 30 January 2019 a new strategy for the procurement of fuel oil, diesel and liquid sulphur to all Eskom’s coal-fired power stations was approved in order to save costs. National Treasury supported the revised strategy as per their letter dated 15 February 2019. (annexure A – signed letter from Treasury)”10
25.2 He identified the first of the risks posed by the fuel oil contracts as, “Deviation from approved board and Treasury mandate. The mandate from the board as well as National Treasury to purchase directly from refineries in order to ensure an optimal procurement approach, ie cost savings were not met. annexure A”11
25.3 In his summary of the grounds for his recommendation he referred again to the board resolution as follows:
“The strategic objective of the board as well as National Treasury of procuring directly from refiners to ensure optimal cost savings for Eskom was not achieved.”
Mr Dabengwa’s accusation
26 Mr Dabengwa accused Mr De Ruyter of being dishonest in his account of the board resolution of 30 January 2019. He said there had never been such a resolution and did not accept that Mr De Ruyter might have made an error in good faith. He accused Mr De Ruyter of dishonesty, that is, of saying that there had been such a resolution when he knew that it was not so.
27 Mr Dabengwa made it clear in his interview with me that he accused Mr De Ruyter of dishonesty on this score:
“Question: Yes, but what I’m still trying to understand is whether the gist of the accusation was merely that they had a weak case or whether they had put up a dishonest case.
Answer: They put up a dishonest case.
Question: Can you tell me – dishonest in the sense that they said one thing knowing that it was not true?
Answer: That’s correct.
Question: Can we get to the heart of that? What are the dishonest submissions they made to the board?
Answer: The dishonest submission was that the board had decided previously to only source from refineries.”12
28 Mr Dabengwa’s accusation thus raises two questions. The first is whether the board had in fact adopted a resolution of the kind Mr De Ruyter attributed to it. If not, the second question is whether Mr De Ruyter made an honest mistake or told a deliberate lie.
The evidence on the issue
29 The minute of the board meeting of 30 January 2019 is inconclusive. It does not reflect a resolution to adopt a strategy only to procure fuel oil from refineries. But it also does not exclude the possibility of such a decision. Paragraph 8 of the minute deals with a discussion about a number of procurement issues. It records that Eskom’s Chief Procurement Officer, Mr Tshitangano, joined the meeting for this discussion. The minute of the discussion includes the following:
29.1 One of the issues discussed, was,
“Mandate to conclude contracts for the supply, delivery and off- loading of fuel oil to all Eskom’s coal-fired power stations.”
29.2 It recorded that there were new allegations against an Eskom senior manager and Econ Oil, one of the companies recommended for the award of a new fuel oil contract. The matter was under investigation by attorneys Bowmans. In the meantime, Econ Oil had been suspended from supplying fuel oil to Eskom.
29.3 The minute recorded a discussion with the CPO, Mr Tshitangano, about the possibility of adopting “the refineries option” as follows:
“The CPO referred to the supply contract with Sasol and Engen which in his view required different approaches. After consideration, the CPO was requested to review the fuel/oil submission taking into consideration further negotiation with the refineries, the risk should the contracts not be placed on time and that the delay should not place the business at risk… The CPO was mandated to take the necessary steps, provided that the business is not put at risk, to consider the pros and cons of the refineries option, which according to the CPO can be done in a short period of time on the basis that the current contract/negotiations are cancelled based on allegations which have come to light. The chairman reiterated that this stance should not be misconstrued as the Board not supporting black empowered companies but there needs to be an understanding of the challenges at hand and that the Board has to be assured that it can make informed decisions. Further, although the Board is committed to empowerment, it could not put the company at risk and must also ensure the security of supply.
29.4 This discussion concluded with a resolution which inter alia provided that,
“The Chief Procurement Officer is authorised to review the fuel/oil contract and take the necessary steps including taking into consideration… further negotiation with the refineries.”
The CPO was requested to consider the five contracts in their entirety and, if satisfied, to make recommendations to the Board for approval via round robin resolution.”
30 Two days later, on 1 February 2019, Mr Tshitangano addressed a letter to National Treasury reporting on the board meeting as follows:
“1. Eskom Board held a meeting on 30 January 2019, in which a new strategy for the procurement of fuel oil, diesel and liquid sulphur to all Eskom’s coal-fired power stations, was approved in order to save costs. This strategy was recommended by National Treasury on a letter dated 30 November 2018 which is attached as annexure A.
2. The Board directed management to procure fuel oil, diesel and liquid sulphur directly from the refineries/manufacturers and in cases where there is a government agency, the government agency will be approached first, as directed by paragraph 4.4.1(iii) of “Supply Chain Management guidelines on the implementation on the demand management” which requires an institution to consider optimum methods to satisfy the need.
3. The refineries/manufacturers will be requested to submit proposals or quotations using a closed bid process. Eskom will comply with the principles of section 217(1) of the Constitution because refineries will compete against each other.
4. The Board further resolved that Bid Corp 4403 for the supply, delivery and off-loading of heavy fuel oil (HFO) to Eskom’s coal- fired power stations should be cancelled due to material irregularities in the tender process. The bid was advertised to replace the interim contract.
5. National Treasury is requested to support the implementation of the optimum procurement approach approved by the Board.”
31 This letter is indeed compelling evidence in support of Mr De Ruyter’s account of the board resolution of 30 January 2019. The author of the letter, Mr Tshitangano, was not only present at the meeting, but was central to the procurement discussion. A board decision, to procure heavy fuel oil only from the refineries, would moreover have been a determination of Mr Tshitangano’s own mandate. His understanding, reduced to writing two days later, is accordingly the most compelling evidence of what the board had actually decided.
32 National Treasury responded to Mr Tshitangano’s letter on 15 February 2019. It recited the paragraphs of Mr Tshitangano’s letter quoted above and said that,
“National Treasury support the implementation of the optimum procurement approach on condition that it is cost-effective for the business and that refineries compete against each other.”
33 This letter is also crucial for the following reasons. First, it gives a verbatim account of Mr Tshitangano’s description of the board decision of 30 January 2019. Second, it expresses National Treasury’s support for the new strategy.
Third, as we shall later see, Mr De Ruyter relied on this letter for the account he gave to the board in March 2020 of the board resolution of 30 January 2019.
34 Eskom thereafter called for tenders for the supply of heavy fuel oil. It initially limited its call to refineries but later extended it to resellers as well. Eskom’s Finance Department reported on the bids in a memorandum dated 5 July 2019. It acknowledged the board decision of 30 January 2019 to the effect that the fuel oil should be procured from refineries only. It explained that it had extended the scope of the procurement only because it did not succeed in satisfying its requirements directly from refineries:
“In a meeting held by the Eskom Board on 30 January 2019, a new strategy to procure fuel oil, diesel and liquid sulphur to all Eskom oil fired power stations in order to save costs recommended by National Treasury in a letter dated 30 November 2018 was approved. The Board directed management to procure fuel oil, diesel and liquid sulphur directly from the refineries/manufacturers…
On 15 February 2019, National Treasury approved the sourcing of fuel oil through a closed tender process to refineries/manufacturers. Following the approval, an RFQ was issued to the South African Major Refiners (NATREF, SAPREF, ENREF, Petro-SA and CHEVREF). Only Sasol admitted an acceptable tender. Sasol’s tender still couldn’t meet Eskom’s total requirements. This necessitated Eskom to include some blenders to assist with the balance of the volumes…
The intention is to first award the contracts to the major refineries. In the event that the committed volumes of the highest ranked refinery does not meet Eskom’s total demand, then the second ranked refinery will be allocated the remaining volumes and the same principle will be applied respectively.
If there is still volumes not allocated from the refineries allocation, then the remaining volumes will be allocated to blenders/manufacturers using the same principles used to allocate to the major refineries.”
35 When Mr De Ruyter started investigating the fuel oil contracts, he addressed a number of queries to the Commercial Team responsible for the contracts. They responded to his queries on 13 January 2020. They described the strategy they had employed in their procurement as follows:
“The strategy was to procure fuel oil from major national refineries as the source of the fuel oil supply. There was no need to question the major refineries’ infrastructure. When Eskom realised that major refineries were unable to supply all the fuel oil volumes, a decision was taken to include blenders and a condition was articulated upfront that site visits will be conducted prior to contract award to assess the infrastructure capacity for all new entrants.”13
36 Mr Hewu made frequent mention of the strategy, adopted by the board on 30 January 2019, in his submission to the board dated 7 February 2020. He for instance did so as follows:
36.1 “The board, at its subsequent meeting held on 30 January 2019, approved a new strategy for the procurement of fuel oil by Eskom for all its coal-fired power stations directly from the refineries, as a cost saving measure.”14
36.2 “The board should consider its strategy as approved on 30 January 2019 to source fuel oil for all its coal-fired power stations directly from the refineries.”15
36.3 “The board resolution of 30 January 2019 approved a new strategy for Eskom to source fuel oil for all its coal-fired power stations directly from the refineries. Econ Oil is not a refinery and yet, contrary to the board mandate, it stands to benefit under the Corp 4786 Bid.”16
36.4 “If Eskom were to proceed with the conclusion of the contracts with the successful bidders under the circumstances, it will be in defiance of the board strategy and thus will result in the exclusion (for 5 years) of other suppliers such as BP and Engen who have the product at competitive prices.”17
36.5 “Having stated the foregoing, we summarise the reasons as motivation for the cancellation of the fuel oil tender, CORP 4786, as follows… Non- adherence to the board approved strategy of 30 January 2019 of procuring fuel oil directly from the refineries.”18
37 It follows that, when Mr De Ruyter said in his Key Findings submission to the board on 19 March 2020, that the board had adopted a new strategy on 30 January 2019, to procure fuel oil only from refineries, there was a veritable body of documentary evidence in support of his account. He in fact referred to and annexed National Treasury’s letter of 15 February 2019 to his submission. It in turn referred to and recited Mr Tshitangano’s letter of 1 February 2019. It was Mr Tshitangano’s first-hand account of a board discussion in which he had played a central role.
38 Mr Dabengwa denied on two grounds that the board had taken such a decision.
First, he was at the meeting and did not remember such a decision. Second, the board minute did not reflect such a decision which, Mr Dabengwa said, it would have done if the board had indeed taken such a decision.
39 I asked Mr Dabengwa, in our interview, how he explained the trail of correspondence since the meeting of 30 January 2019 which consistently supported Mr De Ruyter’s account of the decision taken at that meeting. Mr Dabengwa could not offer an explanation because he was unaware of the correspondence.19 His ignorance of the correspondence is odd because Mr De Ruyter’s Key Findings memorandum, sent to all directors, including Mr Dabengwa, on 19 March 2020, referred to and annexed National Treasury’s letter of 15 February 2019 in support of his statements about the board meeting of 30 January 2019.
Conclusions
40 The evidence establishes, with a high degree of probability, that Eskom’s Board adopted a new strategy on 30 January 2019 to procure heavy fuel oil only from refineries.
41 The evidence establishes, beyond all doubt, that Mr De Ruyter in any event honestly believed that the board had adopted such a strategy. He said that the based his statement on the letter from National Treasury dated 15 February 2019. It in turn recited Mr Tshitangano’s letter of 1 February 2019. Both fully supported Mr De Ruyter’s account.
42 It follows that Mr De Ruyter’s statement was in all probability correct but in any event entirely honest and justified.
43 I accept that Mr Dabengwa denied in good faith that Eskom’s Board had taken such a decision. He cannot be faulted, in other words, for the dispute of fact between him and Mr De Ruyter.
44 Mr Dabengwa’s accusation of dishonesty was however baseless and irresponsible. It was so particularly because Mr De Ruyter’s Key Findings submission of 19 March 2020, circulated to all directors including Mr Dabengwa, made it clear that Mr De Ruyter relied on the letter from National Treasury of 15 February 2019 for his account of the board decision. He referred to and annexed a copy of the letter. His statement was thus patently honest. Mr Dabengwa did not have shred of support for his accusation of dishonesty. It was irresponsible of him to make it.
THE SUSPICION OF COLLUSION
What Mr De Ruyter said
45 In his submission to the board of 7 February 2020, Mr Hewu said that there was some suspicion that Sasol and Econ Oil might have colluded in the preparation of their bids. He put it as follows:
45.1 “We have it on good authority that two of the successful bidders may have embarked on collusive tendering practice, with the commodity provider assisting its competitor in preparing its tender submission for the fuel Corp 4786 tender, a prohibited practice by the Competition Act.”20
45.2 He said in his summary of the reasons for the proposal that Eskom cancelled the fuel oil contracts, that they included,
- “detected possible collusion practices by bidders”; and
- “breaches of section 4(1)(b) of the Competition Act by the bidders.”
46 Mr De Ruyter never took the accusation any further than this.
Mr Dabengwa’s accusation
47 In the summary of his accusations on 8 June 2020, Mr Dabengwa recited the paragraph from Mr Hewu’s submission quoted above21 and articulated his complaint as follows:
“The GCEO has failed to provide particularity as regard the “anti- competitive practices” which he has alleged. The GCEO is hereby called upon to provide a detailed report in this regard and to point out exactly which provisions of the Competition Act No 89 of 1998 have been breached and in which manner. He is similarly called upon to provide details in relation to the Constitution and the PMFA vis-à-vis the alleged “anti-competitive practices” or any other irregularities.”22
He added that, if Mr De Ruyter failed to address this request, it “will lead to the inference that his averments were made recklessly”.23
48 As is apparent from this description of Mr Dabengwa’s complaint, he does not accuse Mr De Ruyter of dishonesty. He made this clear in our interview:
“Question: Why do you say that, when they said we have it on good authority that there might’ve been collusion between these bidders and others, that that was a dishonest statement?
Answer: I’m not saying, I’m not saying that it’s a dishonest statement. I am saying you are providing that statement to me for purposes of making decision. So if you’re providing that statement to me for purposes of making a decision it must carry some evidence. That’s the point I’m making. I’m not saying whether its honest or dishonest.”24
Mr De Ruyter’s explanation
49 Mr De Ruyter addressed this issue, on 28 May 2020, in his response to Mr Dabengwa’s accusations as follows:
“110. In the meantime Bid Corp 4786 attracted bids from both refineries (including Sasol) and from Econ (a reseller). It follows that Econ was bidding against its own supplier in that whatever bid was awarded to Econ would in turn be sourced from Sasol.
111. The fact that Sasol appeared to have entered a bid in an amount higher does not definitively prove collusion but it is an indication of at least serious irregularity. In the meantime, it has come to the GCE’s notice that Sasol assisted Econ in compiling and executing its bid documentation. These are all events that require further investigation and effectively implicates both Sasol and Econ in unlawful conduct.
112. Econ as a reseller is simply not capable (without going insolvent) of discounting its price to Eskom at a level that is cheaper than would have been the case had Eskom simply purchased directly from Sasol.”
50 Mr De Ruyter elaborated in our interview as follows:
50.1 “So at the board meeting, I don’t think I categorically stated that there was collusion. I said that the fact that a supplier supplies to a distributor or a reseller and that reseller sells at a lower price than the supplier, that does suggest that there’s some sort of arrangement going on. If you read the Bowman’s report, for an extended period of time Econ Oil had offices in the Sasol Oil building and they performed their work from there, so they certainly had a very close relationship. It had also come to my attention that Sasol is at the moment conducting an investigation into potential collusive practices with Econ Oil. I am not familiar with the content of that investigation or what the progress is on that.”25
50.2 “Ja, so these were allegations made by Mr Mouton. He said that – because he’d previously worked in the Sasol commercial department and he said he’d heard – now again this is hearsay… that he’d heard that Sasol had been told by Eskom that if you want to place your fuel oil volume then do it through Econ Oil.”26
50.3 “Question: Is my understanding correct then that, on your understanding, there is no innocent explanation for the fact… that Sasol put in a bid at a price higher than Econ?
Answer: Well, it could be that Sasol wanted to support black economic empowerment and develop a supplier by giving it a preferential price.
Question: Ja, but that would be collusive tendering for a good cause.
Answer: Ja, but that’s really the only innocent explanation if you will that would explain that.”27
51 If Sasol had indeed assisted Econ Oil in the preparation of its bid, they would both have been guilty of collusive tendering because they held out to Eskom that they submitted bids in competition with one another. Their collusion would have constituted a prohibited practice under section 4(1)(b)(iii) of the Competition Act 89 of 1998. It would also have constituted the crime of fraud at common law.
Conclusions
52 Mr De Ruyter did not in any way mislead the board on this issue. He disclosed to the board whatever information was available to him. The information raised a suspicion that there might have been collusion between Eskom and Econ Oil. It was a relevant consideration because the suspicion was worthy of investigation. If it was substantiated, it would mean that Sasol and Econ Oil had unlawfully and fraudulently induced Eskom to pay more for its heavy fuel oil than it should have done. It was a consideration in favour of cancellation of the fuel oil contracts.
53 Mr De Ruyter is accordingly innocent of any misconduct on this score.
“FRAUD AND CORRUPTION”
Mr Dabengwa’s accusation
54 Mr Dabengwa raised this complaint in his email of 22 March 2020,28 at the board meeting of 25 March 2020,29 in his first email of 25 March 202030 and his second email of 25 March 2020. He summarised it in his note of 8 June 2020 as follows:
“There has been a bold and unsubstantiated allegation by the GCEO that there has been “fraud and corruption”. The GCEO is hereby called upon to provide particularity as regards the allegations of “fraud and corruption” that have been raised by him detailing in what manner the alleged “fraud and corruption” took place and when exactly did such instance/s of “fraud and corruption” take place including, but not limited to details of persons/companies who participate. It would be prudent for the GCEO to provide documentary evidence of his allegations.”31
55 The complaint referred to Mr De Ruyter’s account to the board of evidence of misconduct particularly on the part of Econ Oil. The essence of Mr Dabengwa’s complaint is that Mr De Ruyter misled the board because the evidence of misconduct is both unproven and unrelated to the award to Econ Oil under BID CORP 4786. He accordingly raised issues of proof and relevance.
56 Mr Dabengwa made it clear in his interview that he did not contend that Mr De Ruyter had been dishonest on this score:
“Question: The other issue on which you accused Mr De Ruyter and his team is on the issue of their so-called fraud and corruption allegations. Correct? I understand that you made those allegations, well, I understand that they presented a case to that effect and that you accused them of dishonesty in regard to it. Why do you say that the case they presented was a dishonest one?
Answer: No, what I said was there is no evidence. They have never produced any evidence of these fraud and corruption allegations.
Question: But that simply means that they had a weak case. It doesn’t mean that, it doesn’t make their case dishonest. Is that correct?
Answer: Ja, that’s correct.”32
57 It is clear that, on this issue, Mr Dabengwa does not allege that Mr De Ruyter misled the board. The highwater mark of his accusation is that Mr De Ruyter’s allegations were unproven and irrelevant. But he did not mislead the board. That much is plain from the fact that Mr Dabengwa consistently argued before, during and after the board meeting, that these allegations are both unproven and irrelevant. Mr De Ruyter accordingly did not mislead anybody. Mr Dabengwa’s complaint goes no further than to argue that the case Mr De Ruyter made, in favour of cancellation of the fuel oil contracts, was based on unproven and irrelevant allegations. It goes no further than to argue that Mr De Ruyter made a weak case. It does not suggest that the case he made was in any way improper.
58 I shall however deal with the evidence on which Mr De Ruyter based his submissions to the board. He never contended that the evidence proved “fraud and corruption” on the part of Econ Oil in relation to the BID CORP 4786 contract. He contended merely that there was much evidence that Econ Oil had in the past been guilty of misconduct in its relationship with Eskom. The suspicions raised by the evidence were unproven but worthy of investigation. That was so particularly because the most recent award had been made to Econ Oil without any proper financial or technical assessments and comparison of the competing bids.
The evidence of misconduct
59 The Group Executive submitted a memorandum to the board on 23 January 2019 seeking a new mandate to conclude contracts for the procurement of heavy fuel oil. It recorded that an anonymous tip-off received from a whistle-blower had proven to be unfounded. 33 It added however that there were new allegations of misconduct against Econ Oil:
“However, after the review by A & F, there were new allegations against an Eskom Senior Manager and one of the companies (Econ Oil Energy Pty (Ltd)) recommended for the award of the new fuel oil contract. This matter is still under investigation by Bowman & Gilfillan and a report is expected by 23 January 2019. In the meantime, Econ Oil has been suspended from supplying fuel oil to Eskom.”34
60 Eskom appointed attorneys Bowmans to investigate allegations of misconduct against Eskom’s Ms Thandi Marah. Bowmans produced a draft progress report on 29 January 2019. Its mandate was thereafter terminated without explanation when it was about to publish a damning final report. Its progress report made damning findings reflecting adversely on Econ Oil and its relationship with Eskom generally and with Ms Marah in particular.
60.1 Ms Marah “was suspended on 27 December 2018, following preliminary findings of misconduct against her pertaining to various allegations. As some of these findings relate to Econ Oil & Energy Pty (Ltd) (“Econ Oil”) and Eskom is in the process of assessing the possible award of a fuel oil supply contract to Econ Oil, Bowmans has been requested to present Eskom with a progress report containing our preliminary findings to date.”35
60.2 “The investigation to date has uncovered evidence of a potentially improper relationship between Marah and Econ Oil which warrants further detailed investigation before any conclusive finding is made.”36
60.3 “On 27 December 2018, Marah was suspended. Eskom informed Bowmans on 18 January 2019 that Marah has taken pension and that her last working day will be 31 January 2019. Consequently, we understand that all pending disciplinary processes relating to the allegations were suspended by Eskom.”37
60.4 “During Bowmans’ investigation of issues relating to Marah, and in particular with regard to her non-declaration of business interests, we found evidence that Marah requested, and obtained sponsorships from Econ Oil and / or Ms Nothemba Mlonzi, the CEO and owner of Econ Oil.
We also received information that Marah may have improperly interfered, on behalf of Econ Oil, in issues between Eskom and Econ Oil with regard to the procurement process.”38
60.5 “Mashila (Eskom’s Procurement Manager) further informed us that whenever he took issue with Mlonzi (of Econ), Marah would come to him, either to resolve the issue or to reprimand him. He found this to be improper as Marah was supposed to first take the issue up with his line manager…”39
60.6 “Mlonzi contacted Mashila after office hours on 28 June 2017. This was during the final negotiation stage of the closed tender process for the period from 1 July 2017 to 30 June 2018. Mlonzi requested him to provide her with the prices of her competitor FFS in an apparent attempt to be able to adjust her prices accordingly.”40
60.7 “On 30 June 2017 the contract awards for the next year were made. As indicated above, Econ Oil lost 5 power stations to FFS.
Mlonzi called Mashila on Sunday 2 July 2017 and requested him to fraudulently change the award in her favour. He told her that such was not possible.”41
60.8 During the period December 2003 to November 2018, Eskom has paid Econ Oil R15,750,445,447.12.
According to the SAP report, payments that exceeded the contract value amounted to R540,105,918.09.”42
60.9 “In 2016, McKinsey on behalf of Eskom, assessed the issue of possible overpayments. They presented their findings in a document dated 2 June 2016…
The evaluation performed by the consultant indicated that there was a substantial overcharging by Econ Oil….
The calculations were performed from 1 April 2012 to 1 March 2016 and the total amount of overpayment over that period was calculated to be a net of R379,886,593….”43
61 Eskom’s Senior Manager: Business Analytics, Mr Mohamed Kahn, reported on the bids for the supply of heavy fuel oil pursuant to BID CORP 4786 in a memorandum dated 5 July 2019. He reported that they could not do an evaluation of the most cost-effective tender for the following reasons:
“We are concerned about the fact that no technical evaluation was conducted for this tender for both the offers submitted by the major refineries and the blenders/manufacturers. Although the technical evaluation was done for suppliers who responded to the RFI, a technical evaluation is still needed for both the major refineries and blenders/manufacturers to confirm if the tenderers are still technically compliant to assure Eskom that the price comparison will be done on a common base. Therefore, we are unable to comment if the prices submitted are on a common based.”44
“The table below reflects the Rand per ton (R/Ton) rates quoted. It should be noted that the rates reflected are not on a comparable basis and therefore should be viewed as such. This is due to the fact that a common right of exchange was not used to convert the foreign portion of the rates and the differences indicated in the commentary above.”45
“Based on our work described in this report, the information provided to us and from a financial point of view, we are unable to recommend the most cost-effective supplier and comment on the reasonableness of the prices submitted as the tenders are not on a comparable basis.”46
62 Eskom awarded the BID CORP 4786 contracts on 1 November 2019. It discovered on 14 November 2019 that Econ did not have back-to-back contracts with its suppliers.47 Eskom scolded Econ for this deficiency on 23 November 2019:
“In the absence of signed agreements between Econ Oil and refineries, it is not possible for Eskom to sign a supply contract with Econ Oil.
Eskom would like to draw your attention to the fact that it is a misrepresentation to offer quantities during the bidding process knowing that you do not have capacity to produce such quantities or secure them from third parties.”48
63 Eskom again reprimanded Econ on 28 November 2019:
“It is unfortunate that Econ Oil does not want to own responsibility for submitting an outdated and irrelevant document and further shifting the blame on Sasol. Eskom is of the view that Econ Oil fails to deliver fuel oil, the blame will be shifted to Sasol or Engen.”49
64 Sasol informed Eskom on 28 November 2019 that, because it had now undertaken to supply Econ, it was no longer able to supply the quantities offered in its own bid:
“As mentioned in our request for extension of the due date for response in our letter dated 27 November 2019, Sasol engaged and committed with other successful suppliers to the Eskom tender to make volumes of grade 3 fuel oil available to them. This means that Sasol will not be able to commit to the original volumes of grade 3 fuel oil as offered in our tender documents.”50
65 The original budget for the BID CORP 4786 contracts was R14b. Shortly after allocation of the contracts, on 12 December 2019, the Procurement Manager applied for the budget to be increased to R18b.51 The Investment and Finance Committee turned down this application on 10 January 2020.
66 Pursuant to the meeting of the Investment and Finance Committee on 10 January 2020, Mr De Ruyter raised a series of questions with the Commercial Team on
12 January 2020.52 It appeared from the responses received from Mr Tshitangano and later from the Commercial Team, that Eskom had never done any proper technical or financial assessment of the BID CORP 4786 tenders before awarding the contracts.
67 Eskom appointed a Mr Mouton to do an assessment of the BID CORP 4786 bids.
He rendered a damning report dated 3 February 2020 to the effect that Eskom had hopelessly mismanaged the BID CORP 4786 procurement process and had ended up with most disadvantageous contracts including the one allocated to Econ.
Assessment of Mr De Ruyter’s conduct
68 It is clear that Mr De Ruyter did not mislead the board in any way. He described the evidence that raised serious suspicions that Econ had in the past been corrupt and dishonest in its relationship with Eskom. He did not suggest, however, that any of the suspicions had been proven. He also did not suggest that the evidence of Econ’s misconduct related directly to its BID CORP 4786 contract. He accordingly honestly placed the available information before the board for the directors to make their own assessment.
69 The members of the board were not misled by the information Mr De Ruyter placed before them. On the contrary, Mr Dabengwa for instance argued before, during and after the board meeting of 25 March 2020 that the “fraud and corruption” suspicions raised by Mr De Ruyter had not been proven and did not relate to BID CORP 4786.
70 I am of the view that Mr Dabengwa was mistaken in his assertions that the evidence of Econ’s misconduct was irrelevant. The evidence raised serious suspicions about Econ’s conduct in its relationship with Eskom. The suspicions had never been properly investigated. Eskom ought not to have awarded a fresh contract to Econ without getting to the bottom of the incriminating evidence. That was all the more so in this case where a very large contract was awarded to Econ without any proper technical or financial evaluation of the competing bids.
71 But, for purposes of my report, the debate about the relevance of the “fraud and corruption” evidence is unimportant. It is no more than a legitimate debate on a matter about which responsible directors may hold different views. The important point, for purposes of this report, is that Mr De Ruyter did not in any way mislead the board. He is accordingly entirely innocent of any misconduct.
ANCILLARY ISSUES
72 Eskom also asked me to advise on the following ancillary issues depending on my conclusion on the main issues already discussed.
73 The first question is whether the board acted correctly in passing its resolution to cancel the BID CORP 4786 contracts. It seems clear that the board acted correctly in that it took a decision in principle in the best interests of the company. It would however have to take legal advice on the implementation of the decision. It will require a detailed analysis of the procurement process by which the CORP 4786 contracts were awarded. I do not have any information about the process and have not been given the underlying documents. It is accordingly not a matter on which I can advise.
74 The second question is whether Eskom should approach a competent court to have the BID CORP 4786 contracts set aside. This too depends on an analysis of the procurement process described in the previous paragraph. I am accordingly also not able to answer this question.
75 The last question is what is to become of the board member who made the allegations against Mr De Ruyter if they are not sustained. I prefer not to entertain this request because I found it invidious to inquire into the justification for Mr Dabengwa’s complaints and, at the same time, sit in judgement on his fate.
CONCLUSIONS
76 My conclusions are as follows:
76.1 Mr De Ruyter’s statement that the board had adopted a new strategy on 30 January 2019, to procure heavy fuel oil only from refineries, was in all probability correct. Mr De Ruyter in any event made the statement honestly and had good reason to do so. Mr Dabengwa’s accusation, that Mr De Ruyter had made the statement dishonestly, was baseless and irresponsible.
76.2 Mr De Ruyter’s statement, that there were suspicions of collusion between Sasol and Econ, were justified and relevant. He in any event did not mislead the board.
76.3 Mr De Ruyter’s disclosure of “fraud and corruption” information to the board was both justified and relevant. He in any event did not mislead the board.
Wim Trengove SC
14 July 2020
Footnotes:
1 Minute of Eskom board meeting 16 January 2020 p3
2 Hewu memo 7 February 2020 para 33
3 Dabengwa email 13 March 2020; Molokwane email 14 March 2020
4 De Ruyter Key Findings memo 19 March 2020 para 4
5 Mongalo memo 25 March 2020 para 4
6 Makgoba letter to De Ruyter 19 May 2020
7 Dabengwa interview p11 lines 6 to 14
8 De Ruyter interview p2 lines 2 to 12
9 De Ruyter interview p3 lines 1 to 7
10 para 1
11 para 2
12 Dabengwa interview p4 lines 1 to 16
13 Commercial Team’s response 13 January 2020 p11 para 6
14 para 5
15 para 15
16 para 16
17 para 19
18 para 33.7
19 Dabengwa interview p5 lines 9 to 23
20 para 28
21 para 4.1.1
22 para 5.2
23 para 6
24 Dabengwa interview p9 line 21 to p10 line 6
25 De Ruyter interview p19 line 19 to p20 line 7
26 De Ruyter interview p23 lines 10 to 17
27 De Ruyter interview p23 line 18 to p24 line 4
28 paras 2 to 4
29 Transcript of board meeting 25 March 2020 pages 14 to 15, 18, 28 to 29 and 29
30 paras 2 and 3
31 para 5.3
32 Dabengwa interview p7 line 24 to p8 line 12
33 para 3.1.4
34 para 3.1.7
35 Bowmans’ covering letter p1
36 Bowmans’ covering letter
37 Bowmans’ report paras 1.6 and 1.7
38 Bowmans’ report paras 5.4.1.1 and 54.1.2
39 Bowmans’ report para 5.4.4.11
40 Bowmans’ report para 5.4.4.12
41 Bowmans’ report paras 5.4.4.13 and 5.4.4.14
42 Bowmans’ report paras 5.4.5
43 Bowmans’ report paras 5.4.6.2 to 5.4.6.6
44 p6
45 p7 to p8
46 p9
47 Eskom letter 14 November 2019
48 Eskom letter 23 November 2019
49 Eskom letter 28 November 2019
50 Sasol letter 28 November 2019
51 Submission to Exco 12 December 2019
52 De Ruyter email 12 January 2020
ENDS
