Eskom fails to recognise its failings
Bank demands clean audit as loan agreement SAA infighting, inaction does not fly with Gigaba
DURING three weeks of negotiations with Eskom it became clear that it had no understanding of governance or why it is in such a mess, says the chairman of the Development Bank of Southern Africa, Jabu Moleketi.
The bank triggered a clean-audit clause in its debt agreement with Eskom after the auditor-general gave its financial statements for the year ended March the thumbs down, not least because of a missing R3-billion in unauthorised expenditure.
The bank demanded that Esko financial director, the Gupta-associated Anoj Singh, be removed immediately or it would call in a R15-billion loan.
This would have triggered the instant recall of some R351-billion INSTABILITY and disunity within the board of ailing state airline SAA are placing the continued tenure of deputy chairwoman Tryphosa Ramano in jeopardy.
Business Times has learnt that infighting between SAA chair Dudu Myeni and Ramano has become a matter of concern for Finance Minister Malusi Gigaba who, it is alleged, believes it has hurt the national carrier.
Ramano, who is expected by many to become chairwoman when Myeni departs in two weeks’ time, could also find herself out in the cold, Treasury insiders say.
“The minister is not happy about it, as they can’t do things that require intervention as long as they are so busy dealing with each other,” said a source. “Both are stubborn and it’s unhealthy that they can’t put their issues aside for the sake of the airline.”
Gigaba’s displeasure with Ramano and Myeni, say Treasury sources, centres on his recent discovery that the new board had failed to act on two investigative reports, one by EY and the other by law firm Edward Nathan Sonnenbergs, which identified critical areas in which SAA could make savings.
The reports were commissioned by Myeni’s previous board to probe severe losses, but received a lukewarm reception from the new board, which questioned Myeni’s intentions, as well as the involvement, as coordinator, of her right-hand man, Nick Linnell.
“There was hesitation because we did not know whether she was fighting her own battles. Linnell’s presence further muddied the waters. As you know, he is the chairwoman’s fixer and he is not even a lawyer, so we questioned his role and asked for him to be removed.”
The minister’s intervention has worth of loans from its other creditors, including major local banks.
During increasingly tense discussions Eskom tried to get the bank to change the terms of the loan agreement and withdraw its ultimatum. The bank wasn’t having any of it.
“We were making our views quite clear,” says Moleketi, also a former deputy finance minister.
“We felt it was important for Eskom to understand the implications of a qualified audit.”
Eskom didn’t seem to understand why it couldn’t just scrap the requirement for a clean audit.
“We thought there was no appreciation on their side of the seriousness of the matter,” says Moleketi.
More bizarre was that Eskom’s “point man” in all its “negotiations and correspondence” with the bank over the removal of Singh was Singh himself.
“We asked ourselves at the DBSA why this was so, because we believed it was important to hear the acting CEO’s voice and the chairman’s voice.” included ordering SAA to process both reports by the end of the month, said spokesman Mayihlome Tshwete.
“There are issues raised in the reports that could have been resolved as early as last year,” Tshwete said. “Given the condition that SAA is in, one would have imagined that everybody sitting around the table had one focus and objective.”
An SAA insider described how, since receiving the reports last year, the board led by Ramano had “kicked the matter into touch”.
At the time of the new board’s announcement last September, Ramano was praised for her toughness, with some Treasury insiders saying they expected her to “take on Myeni”. Her appointment as deputy was seen as a compromise to avoid embarrassing
Singh is the man the bank believed was “at the centre” of Eskom’s financial irregularities.
Eskom, not surprisingly, didn’t see any reason that Singh shouldn’t continue in his position as financial director.
When Moleketi told Finance Minister Malusi Gigaba that the bank was going to recall its R15billion loan to Eskom, and what the implications of this would be for the government – that it would have to find hundreds of billions of rands quickly when other creditors, who made their intentions Myeni, with the understanding that she would take over from Myeni next month.
However, at least three SAA insiders this week said her nononsense approach seems to have rubbed other board members up the wrong way.
According to a Treasury source, the finance minister laid the blame for the suppression of the reports at her door.
This unhappiness places Ramano’s continued tenure on the board in jeopardy.
Tshwete would not comment on Ramano’s position, saying only that the minister had been asked about unity within the board at SAA’s appearance before parliament last week.
“He said he hoped the board was working together. It would be very disappointing if, in an environment clear, called in their loans – the minister “understood our point of view” and “got involved”.
It was only then, on July 27, “that it ultimately sank in that the CFO, who was at the centre of the audit qualifications, had to go, and that there was no way around this”, says Moleketi.
Even if Eskom did not, the bank fully understood the devastating implications of what it was threatening to do.
“We fully understood,” says Moleketi. “That is why we continuously engaged with Eskom and Treasury. We were not irresponsible or reckless.
“But we needed to send the message that issues of bad governance were not going to be tolerated.”
The implications of not sending that message would have affected the bank’s future funding abilities, he says.
It would also have placed at risk the international standing of South Africa’s banks, which have to be compliant with the Basel III regulations on governance.
“As South Africans we needed to handle this matter.” where a lot was being put on the line for SAA in terms of resources, time, and energy, the board wasn’t doing all it could to ensure it was working as a unit to strengthen the airline’s position.”
Tshwete refused to confirm whether specific board members had approached the Treasury, saying: “We have engagements with various members of the board, and they raise various issues. I don’t want to get into specific details. Those are issues that we as the shareholder have to resolve with the board.”
Last month, the government stepped in with a R2.3-billion bailout from the National Revenue Fund – a fund reserved for unavoidable emergencies such as natural disasters – when SAA was in danger of defaulting on a loan repayment.
The role of asset manager and DBSA funder Futuregrowth in the bank’s ultimatum to Eskom seems to have been integral.
After Futuregrowth suspended loans to the bank and other stateowned enterprises last year because of its concerns about governance, it and the bank had a “thorough interaction”, says Moleketi.
“One of the things was to explore how we as an institution could ensure implementation of governance principles in our partners and our clients.”
Futuregrowth made clear its concerns that the bank, as a funder of state institutions such as SOEs and municipalities, was not doing enough to ensure good governance and accountability.
“They had a legitimate concern around what it is that we are doing in terms of ensuring governance in areas where we were exposed,” says Moleketi.
It was concerned about the size of the bank’s exposure to Eskom, given its appalling governance and lack of accountability.
Moleketi believes the bank’s ultimatum to Eskom might be a
The Sunday Times has reported that as executives scrambled to find the money, Ramano led an attempt to have Myeni removed after she missed up to eight board meetings.
So dire is the financial situation that the airline last week told parliament its executives would take pay cuts as it was negotiating to extend payment of last month’s invoices with 20 suppliers.
The airline recorded a loss of almost R1.4-billion in the first quarter against a budgeted loss of R813-million.
It now faces the prospect of more than R6-billion in loans maturing at the end of next month.
In 2014, Ramano survived a very public and nasty fall-out with former PPC Cement CEO Ketso Gordhan during her tenure as the company’s chief financial officer. game-changer in that it “set a precedent, and I think it will be uppermost in the minds of a number of institutions … the DBSA’s stance has to a large extent indicated that things can no longer be done in the same way.”
The bank has a clear vested interest in good governance. It gets no allocation from the national budget. It raises capital from the open market.
Given the shocking state of governance and financial management at municipalities and SOEs, has the bank fallen well short of its obligations?
“That we could and should do more, I concede,” he says.
“But ultimately it depends on the reports it receives from these institutions, and the quality of their boards.
“Certain things are not possible. Among them is whether we as the DBSA can have a say on who is appointed to these boards.
“The appointment of these boards goes through the cabinet.
“They are appointed for political reasons and often lack the appropriate qualities and skills,” he says. — DDC
The battle resulted in Gordhan leaving the company after PPC’s board refused to allow him to fire Ramano.
Ramano could not be reached for comment on Friday as she was in a special board meeting.
Myeni declined to comment, saying: “You have not given me reasonable time to respond to an extensive amount of information”.
SAA spokesman Tlali Tlali said: “The board has looked into those reports and concluded that they are incomplete.
“The process of finalising the reports, including soliciting input from all affected parties and executive management, has since commenced.
“This is not only standard practice, but a requirement in accordance with principles of natural justice,” he said. — DDC