Eskom created “fake” load-shedding to sign R14.5-trillion in coal contracts
According to the City Press, which cited a Special Investigating Unit (SIU) report – which was handed to former president Jacob Zuma in 2017, but never officially released.
1 – Eskom instituted stage four load shedding today – for the first time in at least four years. This means that four thousand megawatts of demand is being taken off the system or around about ten percent or so. Ted Blom is an expert on electricity and on Eskom.
2 – Eskom – Ted Blom
Eskom employees engineered load-shedding to sign emergency contracts to benefit coal suppliers to the tune of R14.5 trillion.
According to the news report, Eskom was behind the “self-created emergency” which partly resulted in the first bout of load-shedding in 2008.
The load-shedding was aimed at signing numerous long-term coal contracts which were handed out without proper tender processes.
The latest report follows a Rand Daily Mail article in 2017 that stated the 2008 blackouts, which cost South Africa around R300 billion, were engineered to benefit favoured companies.
The Rand Daily Mail also cited a 2015 report by law firm Dentons which said senior Eskom executives “benefitted from contracts and had paid up to 200% more than necessary for coal”.
New coal procurement contracts desperately needed
Energy expert Ted Blom, who predicted the current Eskom meltdown in 2013, said the current coal shortages at the power utility are going to last for at least another five years.
Blom said Eskom’s coal problems are self-inflicted and are a result of inaction from Eskom management.
He said he compiled a report with Eskom engineers in 2007 which warned the utility that it needed to intervene to ensure it does not run out of coal.
The Eskom CEO at the time undertook to open 40 new coal mines, but to date not a single one has been opened.
Blom also criticized the way coal procurement is currently done, saying new long-term coal procurement contracts needs to be signed urgently.
At all costs
In more Eskom news, the City Press has quoted the DA as stating that Eskom has been instructed by the ANC to “keep the lights on by any means possible” in the build-up to the national elections on 8 May.
This includes buying diesel “at all costs” to ensure the power stays on in Gauteng and the province is not lost to the DA.
Blom previously said Eskom ran diesel generators flat-out to prevent load-shedding over the Christmas period.
This, Blom said, was to ensure that Public Enterprises Minister Pravin Gordhan’s promise of no load-shedding over the festive season was honoured.
Eskom therefore depleted all its diesel reserves, which should be used as a backup in case of emergencies.
31 March 2019
SIU report says SA forked out R14.5tn for emergency coal during first round of load shedding in 2008
R14.5 trillion – that is how much a Special Investigating Unit (SIU) report found Eskom’s “self-created emergency” cost the country in emergency coal contracts during the first round of load shedding in 2008.
The report containing this staggering figure also found that the country’s first load shedding experience may have been partly engineered by Eskom employees in order to sign emergency contracts to benefit coal suppliers.
Some of these were 10-year contracts, entered into without proper tender processes, and which only expired in December last year.
The report, which City Press obtained, was handed to former president Jacob Zuma in July 2017 after a four-year investigation and was never released by the presidency.
“The figure of R14.5 trillion is … the total value of all coal contracts entered into during the emergency-period negotiations at Eskom. The value is the cost of the contracts for the entire duration of the contract,” SIU spokesperson Nazreen Pandor wrote in a written reply this week.
This is many times South Africa’s entire 2019/20 budget for which expenditure is expected at R1.83 trillion.
The Organisation Undoing Tax Abuse’s energy portfolio head, Ronald Chauke, said he was aware of the SIU’s R14.5 trillion claim.
“But we do think that it is an extraordinary and heavily inflated figure. The SIU should unpack, clarify and explain how it arrived at such an amount.”
The SIU report found that the 2008 power crisis was partly caused by Eskom officials, who ignored repeated warnings that coal stocks were running low.
“The emergency situation that Eskom found itself in was self-created and thus, could have been avoided by the exercise of reasonable care,” the report found.
“The board of directors did not respond to warnings that the coal stocks were reaching dangerously low levels prior to January 2008 and that the threat of load shedding was a strong possibility.
“Had the board heeded such warnings, proper planning could have prevented the situation which led to the emergency procurement of coal. The emergency could have been avoided and the cost of procuring additional coal at a mandated value of R14.5 trillion could have been avoided.”
At the time of the crisis, Eskom’s chief executive was Jacob Maroga and the chair of its board was Mohammed Valli Moosa.
The report further found that at the time of the emergency, Eskom was forced to buy coal from mines which were fetching between R1 400 and R1 600 a ton on the export market.
Eskom, which was buying coal for about R150 a ton, had to increase its prices significantly to divert coal meant for export markets to power stations.
This, finds the report, was responsible for the R14.5 trillion figure.
The report further reveals that some of the companies which Eskom bought coal from in the emergency supplied such poor-quality coal that it caused “flame-outs” at power stations. This is when coal will not burn and extinguishes the flame of a power station boiler, reducing the station’s overall output and further reducing power to the grid.
But these companies will likely never be brought to book because Eskom told the SIU that it could not identify the companies which delivered substandard coal because the coal was burnt as soon as it was delivered during the crisis.
The report, which followed an investigation proclaimed in 2012, gives credence to claims by two other investigations: one by international law firm Dentons in 2015, and the other by auditing firm Deloitte in 2011. Both found that the 2008 load shedding was engineered to benefit certain companies.
The Dentons report further found that load shedding in 2014 benefited diesel companies which had mushroomed from nowhere and were unknown in the industry, suggesting that they may have been set up in anticipation of the load shedding.
The report also found that a 10-year coal supply contract that expired in December, which flowed from a short-term contract awarded during the emergency, was irregular and flouted all tender processes.
SIU investigators found that a year after the emergency, Eskom officials directly appointed a company to supply coal for 10 years without going to tender. The contract, awarded to four companies, was to deliver 490 million tons of coal at a cost of R164 billion. One of the companies was a broker that did not own a mine at the time.
“The contract was the only contract [out of the four] negotiated without following the request for proposal process,” the report found, adding that this violated constitutional principles of procuring goods fairly and cost-effectively.
“It is clear from the evidence gathered that the negotiation of the … contract was designed to circumvent an open tender process,” the report states.
Investigators pointed out that the company’s appointment raised significant questions because in July 2008, Eskom had decided not to buy coal from middlemen and other coal traders, and only to buy from companies that owned mines or had valid joint ventures with mine owners.
“Broker fees, which increased costs, were sought to be avoided,” said the report.
The directors of the company, whose names are known to City Press, did not respond to requests for comment send yesterday morning via WhatsApp and SMS, although one received the request but did not respond.
In January 2008, the report found, Eskom’s coal stockpiles were running dangerously low – well under the acceptable minimum 20-day level.
The Arnot Power Station in Mpumalanga ran out completely, while a further eight power stations had stockpiles varying from between four to 16 days.
This forced the Eskom board to declare an emergency, which allowed officials to approach mines directly and buy coal without going to tender.
A management accountant, whose job was to monitor coal stock levels at Arnot, told SIU investigators that before the 2008 load shedding, she had warned her bosses that the station would run out of coal by the end of 2007.
“She was called into a meeting and was told that she was wrong and did not know what she was talking about,” the report states.
The woman’s affidavit, quoted in the report, says: “I kept sending emails to the senior coal manager of Arnot, informing him that the financials were showing that there was going to be a possible shortage of coal by the end of 2007.
“From the financials I could see that there was a reduction in the stockpile days at Arnot. I was called into a meeting and was told that I was wrong and did not know what I was talking about. On December 31 2007, a number of officials were called in from their leave because Arnot had run out of coal.”
Her testimony prompted SIU investigators to conclude that “the warning signs that indicated that the stock levels were reaching precarious levels were ignored”.
“In other words, the emergency could have been avoided had reasonable care been exercised by Eskom. Eskom’s conduct may have led to a self-created emergency.”
Eskom said it would only be able to respond to questions next week.
According to yet another explosive report by an auditing firm, ’emergency coal’ was improperly bought in 2008 for inflated prices from questionable sources.
In yet another revelation to emerge from the continuing saga of investigations into Eskom’s “dark” past, another report from auditing firm Deloitte appears to have fingered a manager at the parastatal who allegedly decided to use the load-shedding crisis to make a quick buck.
TimesLive reported on Wednesday that the Eskom manager, named as the then lead procurement negotiator Koos Jordaan, the man tasked with buying “emergency coal” worth more than R10 billion at the height of the power crisis in 2008, allegedly negotiated a raft of “irregular” contracts – and at least one appeared to have gone to his personal friend.
They also reported that he resigned as soon as an investigation was launched. A criminal case was also opened against Jordaan and reportedly confirmed by the police, but the National Prosecuting Authority told The Times that they had no docket about the matter on which to to decide whether to prosecute.
Deloitte’s investigations are understood to have also led to the Special Investigating Unit getting involved. President Jacob Zuma has allegedly known about Deloitte’s findings since 2014.
Eskom said on Tuesday it had implemented all Deloitte’s recommendations.
The 2015 Dentons report has also been making headlines for similar reasons, having found that Eskom’s senior executives also allegedly benefited from contracts, with coal being bought for as much as 200% more than market prices should have dictated.
TimesLive reports that Deloitte’s findings “strengthen speculation that the blackout emergency, which cost South Africa an estimated R300 billion, was engineered to benefit favoured companies”.
Jordaan, who is reportedly now a senior executive of a private coal company, maintained he had done nothing wrong and the allegations in the Deloitte report were unproved.
He was quoted as saying: “I have nothing to hide. I did [my] best, my utmost best. I think I did a very good job.”
Eskom spokesperson Khulu Phasiwe told Fin24 on Wednesday the power producer shouldn’t be criticised for conducting internal investigations and acting on the recommendations.
“Eskom was concerned about activities going on inside the power utility, which is why it appointed these firms to investigate the matters and acted on those findings,” he said.
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