Failure to heed advice cost Eskom R300m
Consultancy red flagged Trillian payments Brown wants to know why utility misled her
Eskom could have saved more than R300m had it listened to advice it received in December that payments to Gupta-linked Trillian were irregular and possibly illegal.
This information is likely to be contained in a report Eskom will submit to Public Enterprises Minister Lynne Brown on Friday explaining why it misled her, Parliament and the media about irregular payments totalling R1.6bn to Trillian and global consultancy McKinsey.
Business Day has seen evidence that consultancy Oliver Wyman rang alarm bells about the payments months before a final settlement was made with Trillian in February. But Eskom ignored these warnings — then lied about them.
The R600m Eskom irregularly paid to Trillian when it was majority-owned by Gupta lieutenant Salim Essa makes up a fifth of the R3bn Eskom incurred in irregular and wasteful expenditure in the year to March, risking a default trigger on the utility’s outstanding debt as it breached some of its covenants.
On Monday, Eskom admitted that it lied when it said in June that a report by Oliver Wyman had concluded the payments to McKinsey and Trillian were above board.
In fact, Oliver Wyman had red-flagged the payments and recommended a legal review in December 2016. Eskom also confirmed it had been forced to admit it had lied after receiving a complaint from Oliver Wyman last week about its “factually incorrect” statement in June.
Brown has given Eskom until the end of business on Friday to provide her with a full account of its business dealings with Trillian. She would seek “an urgent opinion on the report from a senior counsel” to advise on remedial action, Brown said in a statement on Thursday.
Documents seen by Business Day show Eskom ignored Oliver Wyman’s findings when it made a final settlement totalling R524.3m to Trillian and McKinsey in February.
Eskom had a contract with McKinsey. But the documents show Oliver Wyman’s final report said that because Trillian
had no contract with Eskom or McKinsey, there was no legal justification for Eskom to make payments to Trillian.
Trillian denied any wrongdoing and insisted it had delivered “a high standard of work to its clients” and billed only for work undertaken.
“Both McKinsey and Eskom are fully aware to the relationship between the parties.”
Eskom paid Trillian almost R600m as McKinsey’s black empowerment partner in terms of a master service agreement between McKinsey and Eskom. McKinsey was paid another R1bn. At the time, Trillian was majority owned by Essa.
A report by former public protector Thuli Madonsela also said Trillian funnelled money to the Guptas to buy Optimum coal mine, although Trillian denies this.
The documents show Oliver Wyman’s report flagged other irregularities including ambiguities in the section of Eskom’s contract with McKinsey dealing with payments and questions about how fees were calculated. They also show that Oliver Wyman’s final report recommending a legal review and expressing misgiving about further amounts being claimed by both Trillian and McKinsey was made available to Eskom on December 15 2016.
Despite this, Eskom paid Trillian another R329m in two tranches — one for R152.8m five days later on December 20 2016 and another for R176.3m in February 2017.
Eskom also paid McKinsey another R348m in final settlement of its fees in February.
McKinsey reiterated this week that it had informed Eskom in March 2016 that it had ended its relationship with Trillian. “Any payments Eskom made to Trillian after this were presumably governed by Eskom’s rules and processes for approval of third party payments”, McKinsey spokesman Steve John said.
The payments to Trillian were for management consulting fees and flagged “as per the [master service agreement]” – even though Trillian had no contract with McKinsey, which had concluded the master service agreement with Eskom. On Eskom’s electronic system, Trillian is loaded as a subcontractor of McKinsey for the payment.
The settlements brought the total paid to McKinsey and Trillian from August 2016 to February 2017 for just six months’ work done from January to June 2016 to R1.6bn. It excludes another R109m paid to McKinsey and Trillian for joint work on Eskom’s corporate plan — R78.6m to McKinsey from September 2015 to January 2016 and R30.6m to Trillian in April 2016. This brings the grand total that Eskom paid for joint work conducted by McKinsey and Trillian to R1.7bn.