Eskom gets McKinsey fee — without interest

Firm to repay R902m, but says it is not responsible for R698m paid to Gupta-linked Trillian

McKinsey will on Monday pay back R902m of the R1.6bn that Eskom awarded it in 2016, but will keep millions in interest it earned on the fee.

The global consulting company will, through its new global managing partner, also make a public apology and “talk frankly” about how it “handled the situation” relating to its work at the power utility.

Even as it claims “full and final settlement”, McKinsey will, however, not be paying the balance, which it instructed Eskom to pay over to the Guptalinked Trillian Capital in 2016.

“The R902m is the full fee we received from Eskom and we have paid it back,” said McKinsey spokeswoman Bonita Dordel on Sunday. “Just the full fee and not the interest.”

At the prime lending rate of 10% a year, interest on the full amount would be about R320m for the two years since Eskom paid the money.

Eskom is in financial distress as it has run out of cash to fund operations. It is living on shortterm loans and is unable to meet its financial obligations without government assistance.

Asked about the interest on the cash, Dordel said the agreement “settles in full” McKinsey’s obligations on the matter.

She said the outstanding R698m “is a matter between Eskom and Trillian”.

Trillian denies it received any undue or unearned payments from Eskom when it purported to be McKinsey’s black economic empowerment partner in a programme to help the utility save money and develop internal engineering capacity.

In an address to business and civic leaders at the Gordon Institute of Business Science in Johannesburg on Monday, Kevin Sneader, the McKinsey global managing partner, “will answer what went wrong and to set out what is being done to prevent the same mistakes happening again”, the consultancy said in a statement on Sunday.

At the height of the state capture project allegedly perpetrated for the benefit of the Gupta family and those close to former president Jacob Zuma, Eskom executives and board directors concocted a scheme to pay R1.6bn to McKinsey and Trillian, then owned by Gupta cohort Salim Essa.

Eskom later admitted it did not know what value it received from the consultancies. After months of denying it had paid the politically connected entity, Eskom also admitted it did not have a contract with Trillian. On the basis of a McKinsey partner letter to Eskom’s former chief financial officer, Anoj Singh, which the consultancy denies was duly authorised, Eskom paid R698m to Trillian without an invoice being issued.

Partly as a result of this and other financial irregularities, Eskom was slapped with an irregular and wasteful

expenditure bill of more than R3bn in the year ended March 2017. The utility’s credit rating was further downgraded deep into junk territory, causing its cost of borrowing to rise further.

At the insistence of some of the lenders, Singh was placed on suspension. He resigned earlier in 2018 after the appointment of a new board and management, following Cyril Ramaphosa’s election as president of the ANC in December.

Seven other Eskom executives, including former acting CE Matshela Koko, implicated in the scandal either resigned or were fired earlier in 2018.

According to Dordel, Sneader will admit that “these mistakes should not have happened. As the global managing partner, I accept full responsibility on behalf of our firm. On behalf of McKinsey, I sincerely apologise to the people of SA. We are deeply sorry.”

The US-based McKinsey will also admit that its programme was geared to serve itself rather than Eskom’s situation and that “the fee was too large … and should not have happened”.

“We did not communicate well enough how seriously we were taking this or how sorry we were for our involvement.

“To be brutally honest, we were too distant to understand the growing anger in SA.”