Eskom ‘flouted own rules’ when signing R25bn capital deal with Chinese funders
ESKOM treasurer Andre Frank Pillay on Friday told the Zondo Commission of Inquiry into state capture how Eskom flouted its own procedures when it signed a R25 billion unsolicited capital-funding proposal with a Chinese consortium.
In 2015, Eskom entered into a dubious agreement with China-based Huarong Asset Management, which had approached the cash-strapped power utility with a proposal to grant it $1.5 billion (about R25bn) to build or refurbish power stations.
Pillay said Eskom pursued the unsolicited proposal to fund capital projects even though its terms were erroneous.
He said Eskom’s rules and procedures were flouted, and Eskom had pushed on with the deal even after realising that Huarong was not going to be able to deliver on its promises.
Huarong had partnered with a South African-based electrical engineering contractor, Tribus Energy, owned by Rajeev Thomas, to establish a black economic empowerment-compliant consortium, Huarong Energy Africa, which would implement this proposal to Eskom.
At the time, Eskom was looking for a funding offer that did not rely on government guarantees to resolve financing challenges.
Pillay said Eskom’s executive, led by former chief financial officer Anoj Singh, travelled to China to meet a Huarong delegation for discussions. At this meeting, Pillay said a man called Rex Madida introduced himself as a political deployee of the ANC and part of the Tribus group.
He said he was concerned with the manner in which Eskom went about the Huarong deal, even though it punted it as innovative funding that would see Eskom receive a cash injection without giving up control of the company and without damaging the balance sheet.
Pillay said Eskom had decided to issue a request for information notice, which, he said, was “a new process”, as the power utility would normally have issued a request for proposal, to ensure there were no similar proposals.
He said Huarong was appointed as the preferred bidder among the 12 that had responded.
“We wanted funding to be greater than R15bn and that would not trigger defaults against debt covenants, to be in line with Eskom’s capital projects, and to be implemented within reasonable short period of time,” Pillay said.
When the deal’s “non-binding” term sheet was presented to Eskom, Pillay said he realised there was a commitment fee of 0.8 percent, amounting to $24 million, and a 0.2 percent cancellation fee, amounting to$30m, if Eskom repudiated or cancelled the deal.
Pillay said this deal was never presented to Eskom’s internal legal department, as Eskom relied on an external legal firm, White and Case.
Pillay said Singh pressured him to sign the non-binding term sheet, as Huarong partners wanted to be at ease about the good working relationship.
“It was sent to me, and I was uncomfortable about singing term sheets, because we were not used to signing term sheets like this, but Singh said I should not worry, because it was non-binding. It was unprecedented to sign term sheets,” he said.