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Business News 17.5.2017 07:58 am

PWC report reveals how Tegeta’s Brakfontein coal agreement with Eskom was stillborn

Eskom didn’t even perform combustion test before contract was signed.

The report commissioned by Eskom to evaluate the contracts relating to four mines supplying its power stations reveal how eager and sloppy the state-utility was in awarding the ten-year contract to Brakfontein mine to supply the Majuba power station.

PWC was appointed to conduct a review of the coal quality management of certain coal suppliers and Eskom’s contracted laboratories following allegations discussed in a “clarification meeting” held in September 2015.

It was Tegeta Exploration and Resources’s (owned by the Guptas and President Zuma’s son) first engagement with Eskom, and judging by the evaluation made by PWC, it was riddled with conflict of interest and hastiness from the beginning.

Eskom’s Eskom Procurement and Supply Management Procedures expressly forbid contracts to be awarded without a formal tender process, according to the PWC report which states: “Sole adjudication are no longer permitted, at any level of delegation.” Yet the firm expressly found that the procurement of coal supply from Tegeta was secured by means of an unsolicited offer, and was thus received outside a competitive tender/enquiry process.

The  report found:

  • The evaluation team did not complete declaration of interest forms as required by procedures nor underwent training on conflict of interest or the Code of Ethics.
  • The sample test quality report was dated March 12 2015, two days after the coal supply contract was signed on March 10 2015. The sample test quality report expressly warned that two mixed coal seams would not be suitable for Majuba.
  • Health and Safety requirements: the first evaluation was conducted on March 18 2015 eight days after the contract was first signed. No records were kept of the pre-qualification documents.
  • The contract that was signed contained a number of formatting and typographical errors, factually incorrect clauses, and ambiguities. Crucially, the Coal Quality Management Procedure was in draft form, incomplete and not yet implemented. “The contract appears to have been compiled hastily by copying and pasting sections from other contracts,” reads the report.
  • There was also a material difference in the percentage increases allowed for price escalation than what Eskom allowed under mandate standards.
  • The coal specification stipulated in the contract was later amended by Eskom’s general manager: Fuel Sourcing, something that should have been agreed to in writing by both parties – i.e. via a contract amendment.

PWC summarised the dealings as such: “The contract was signed on March 10 2015, despite the supplier having failed pre-qualification technical requirements for the supply of coal to “Z” (Majuba) Power Station. It further appears that the condition precedent of a successful combustion test was not met. Notwithstanding this, Eskom continued to implement the agreement with “A Co” – Tegeta.

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