Eskom probes possible oil collusion
Utility calls out ‘serious element of potential conflict’
Eskom’s procurement office is investigating possible collusion and anti-competitive behaviour in a multibillion-rand fuel oil tender after learning that two of its suppliers — which together have earned billions from the power utility — are part-owned by the same person.
According to internal Eskom tender documents seen by the Sunday Times, FFS Refiners and Kepu Trading — both part-owned by businessman Mkhuseli Faku — have earned just under R5bn from Eskom for supplying different grades of heavy fuel oil between October 2018 and March 2021.
Some of the payments happened at a time when Faku had an interest, as shareholder and board member, in both companies — something Eskom spokesperson Sikonathi Mantshantsha said will be a feature of the investigation.
“There is a serious element of potential collusion and conflict of interest, and the matter will now be referred to the legal office in the Office of GE: Procurement for further investigation,” Mantshantsha said.
This comes at a time when a new R12bn tender is being adjudicated and companies are vying to be placed on a panel of firms that will procure emergency fuel for Eskom. Both FFS Refineries and Kepu Trading are bidders for the new fuel supply contract.
If the investigation finds they breached the rules, they stand to be disqualified and lose out on billions of rands, Mantshantsha said.
Internal documents for the new supply contract show that between October 2018 and March, FFS earned R4.4bn in contracts, and Kepu earned R89m between December 2020 and March. However, Mantshantsha put Kepu’s earnings at R72m.
Mantshantsha said Eskom was informed by FFS CEO Andrew Canning two weeks ago that the company became aware of Faku’s interest in Kepu only in July.
Canning’s letter to Eskom two weeks ago came only after Faku received questions from the Sunday Times about the apparent conflict. It was only then that Kepu asked Eskom for permission to withdraw from the bid, which Mantshantsha said Eskom had not yet decided upon.
Until then, both companies had kept information about Faku’s interest from Eskom, Mantshantsha said.
“Proper disclosure is key in Eskom’s procurement guidelines, and all the prospective tenderers are aware of this key governance principle. Given the new developments, Eskom will conduct its own investigations into all the aspects of this matter and take appropriate action against any party that may have contravened any of the governance principles,” he said.
The investigation will also look into why Eskom’s own due diligence processes did not pick up the relationship.
Though Faku insists there is nothing untoward about him serving on the boards of both companies, he and his wife resigned as directors of Kepu on July 29, a day after the bid closed.
An external whistleblower told the Sunday Times that there is no way Kepu could have bid for the three-year multibillion-rand tender without stating that Mkhuseli Faku was a director.
“Eskom’s own tender documents stipulate that company directors and/or shareholders cannot own two companies and be awarded the same contract or compete for the same bid,” the whistleblower said.
An Eskom insider said that, ordinarily, the infraction should result in the immediate, automatic disqualification of both FFS and Kepu from bidding, with further investigation to determine whether the matter needed to be reported to the Competition Commission or law enforcement.
Faku said assertions that his companies colluded to maximise earnings at Eskom are “slanderous” attempts to damage his reputation. “There is no law prohibiting the ownership of shares in various companies or serving as a director on the boards of various companies,” he said.
“This is true even for companies that are competitors or potential competitors of one another as long as adequate protection mechanisms are in place to safeguard the exchange of information, including competitively sensitive information.”
Faku, who described himself as an investor in the oil industry for more than 20 years, said he was one of the founding members of Kepu in 2003, and acquired shares in
FFS from 2003, increasing this to a majority stake in 2013.
Faku said Kepu had not declared his interest in FFS to Eskom because Eskom had not asked him to when it approached Kepu for emergency fuel oil in 2020. He said he had only formally tabled his interest in Kepu to the FFS board after he resigned his directorship in Kepu in July.
“Also, I do not have any direct involvement in the day-to-day running or operational decision-making at FFS, nor did I have such ability while a nonexecutive director at Kepu. I do not, or did not, get involved in tender processes or operational pricing decisions or discussions. As part of the board, I represent the interest of the shareholders.
“As a nonexecutive director, I provide guidance and independent oversight to the board,” he said.
Mantshantsha said if there is reported or suspected anti-competitive behaviour, this is investigated and, “where needed, [reported] to external organisations such as the BroadBased BEE Commission or the [police]”.
“Action is also taken against suppliers found guilty of unethical behaviour or breach of public procurement regulations.”
Heavy fuel oil is a petroleum distillate from crude oil and is used to start up or power down coal-fired stations. Eskom spends billions a year on it, and supply contracts are often fraught with allegations of corruption.
Three months ago, the high court in Johannesburg granted Eskom’s application to review and set aside a R7.9bn award to Econ Oil for the supply of fuel oil. Eskom had argued that the award — part of a R14bn contract for the supply of fuel oil to three companies, including FFS Refineries, made in 2019 — was irregular and unlawful.
The matter is headed for appeal.
I do not have any direct involvement in the day-to-day running or operational decision-making … I do not or did not get involved in tender processes
Mkhuseli Faku
Self-described oil industry investor