Blackmail, mistrust and system overrides: How Eskom bosses tried to sneak through a ‘bespoke’ $1.5bn deal

5 Mar 2019

Senior Eskom managers could smell a rat all over a multibillion-rand funding proposal that had the blessing of their then-bosses — executives who pushed for sign-off, at every turn, despite a string of red flags.

Neatly packaged as an “innovate” funding instrument, Huarong Energy Africa’s unsolicited bid was attractive as it promised to help Eskom raise $1.5-billion in funding for power plant refurbishments without the burden of government guarantees.

But right from the onset, there was an abundance of concerns that were either ignored or side-stepped through nifty executive interventions by, among others, former chief financial officer Anoj Singh, former board member Zethembe Khoza and former acting CEO Sean Maritz.

The deal came at a premium, and the credentials of the company and confirmation that it was indeed linked to China Huarong Asset Management, a company with substantial assets under management, just could not be verified.

Testifying before the State Capture Commission on Monday, Eskom corporate specialist Sincedile Shweni became the second witness to detail how Eskom processes were shunned amid a frantic push by Singh and the others to secure the deal.

The commission earlier heard testimony by the Eskom Finance General Manager, Andre Pillay, about how:

Singh allegedly signed term sheets that committed Eskom to exorbitant fees, including an immediate “signing fee” of R400-million that was to be paid to a company registered in the British Virgin Islands;

How, also at Singh’s instruction, Huarong’s bid allegedly went straight to a board committee, headed by Khoza, thereby bypassing a crucial Eskom committee which generally rigorously interrogates proposals;

That Khoza had allegedly threatened Pillay with an unjustified corruption exposé involving Russian funders when he proved to be a stickler for rules; and

How Maritz signed a second deal for short-term finance with the company without board approval or the authority to do so.

Ultimately, the deal was not signed as the regime change at Eskom arrived just in time to put a stop to it in early 2018, but Huarong has since demanded “coffee” with current chairman Jabu Mabuza, as it reckons Eskom should pay up.

The deal originated in June 2016 when a company linked to Rex Madida, a “political deployee”, and Rajeev Thomas submitted a pitch.

While there had been a decision to solicit other proposals, Eskom continued with extensive one-on-one talks with Huarong even as a request for information and, later, a request for proposals, had gone out to the market.

This personal interaction included a trip to China where the term sheet signed by Singh was presented to Huarong as a sign of good faith.

At this meeting, Singh allegedly pretended that he didn’t like the deal, something which, Pillay testified, seemed odd at the time as he had already pushed to sign the term sheet. The Huarong delegation appeared totally unperturbed by his reaction.

On Monday, Shweni testified to how he had secretly tried to block Reserve Bank approval for the deal by framing it in a way that he believed would trigger queries about a third-party company that Eskom was required to pay a “signing fee” to.

He said he could not, at the time, afford to be overt in his warning signal as this could have triggered a steep cancellation fee if Huarong had later obtained a copy of the SARB application.

This application was an important little box to tick as Eskom required approval to make payment to a Hong Kong bank account of the foreign entity, Ideva International Group.

Shweni said he had hoped that the Reserve Bank could put a spanner in the wheel, but he conceded during testimony that he could have been more implicit in his attempt to “warn” the SARB.

The inclusion of Ideva had set off alarm bells as the company, registered in the British Virgin Islands, had produced financial statements for the period 15 August 2012 to 31 December 2016.

This, he said, meant there were no financial statements from the date of incorporation until then, suggesting it had been a mere shell company.

“Under the revenue section, it showed a zero, meaning the company had not concluded any transactions to generate revenue.”

And, not only that:

“I was presented with a set of qualified financial statements. It was not permissible for us to continue our engagement and we raised the discomfort with Rajeev Thomas (of Huarong).”

Then Thomas allegedly gave him the same financials, for the same period, this time with “an unqualified audit opinion”, Shweni testified.

Yet, Eskom was looking to sign a $1.5-billion deal with Huarong and was seemingly prepared to pay the obscure Ideva the initial “signing fee” of R400-million.

The Reserve Bank later suspended the approval as a matter of course.

“Personally, the issue of the signed term sheet that had a cancellation fee haunted me,” Shweni said.

He said he couldn’t afford to be the person responsible for triggering a steep cancellation fee if the parties later found out that he had flagged the deal in the SARB application.

This, he said, was a “professional error” and he had had no intention of misleading the Reserve Bank.

There was no way the Reserve Bank could have “read between the lines” to realise there was a problem, Shweni said.

But he said, “then, the only person I could trust was just myself. I don’t know the extent to which other people had different mandates”.

Shweni confirmed testimony by Pillay about how international law firm White & Case had very early on flagged several issues, including the structure of Huarong, its parent company in China, and various “onerous” conditions the deal would have placed on Eskom.

The message from White & Case to Eskom was clear — “don’t sign”— yet it was ignored and Eskom’s own legal team was approached only once they had signed on the dotted line, Shweni said.

Pillay earlier implicated, among others, Singh, Maritz, Khoza and the former director-general of public enterprises, Richard Seleke. Pillay also named former public enterprises minister Lynne Brown, whom he said Maritz had allegedly told him would sign off on the deal.

Singh, Pillay said, had once slipped him a piece of paper with the name of a subordinate. He was told to get rid of him.

With both of them realising that the situation had become untenable, Pillay said they negotiated the employee’s exit, something that he told the commission had not been right.

Months later, Pillay would find himself at the receiving end of a blackmail attempt when Khoza allegedly casually accused him of having scored off a Russian funding deal.

As it later turned out, Eskom had never concluded such a deal, Pillay told the commission.

The period in which the controversial Huarong deal plagued Eskom managers was a critical time in the Gupta wave of State Capture at Eskom. Apart from known Gupta acolytes such as Singh pushing so hard for the deal, the commission has not as yet heard testimony about who ultimately stood to benefit from it.

The commission resumes on Tuesday with testimony by Gert Opperman from Eskom’s Primary Energy Division. DM

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