Monday, April 26, 2010

DA Newsletter 26 April 2010

Was there collusion in the Eskom-Hitachi Deal?

This week saw yet another scandal involving Eskom. It was revealed that Eskom was secretly giving mining firm BHP Billiton – which uses nearly 10% of all electricity generated by Eskom – a below-cost discount for electricity. This, at a time when consumers are expected to fork out for the 25% electricity price hike announced in February.

Since Billiton contributes only 0.1% of our Gross Domestic Product, it is impossible to see how this discount can be justified. The cost of the discount to Billiton, reportedly, amounted to the bulk of Eskom’s R9,5-billion loss last year.

No explanation from Eskom has been forthcoming. All we have heard from Eskom are contradictions. They say this revelation is nothing new as it was in their financial statements; but on the other hand they threaten to sue DA MP Pieter van Dalen for exposing the secret dossier in Parliament.

Predictably, the ANC, represented by Chairperson of the Public Enterprises Portfolio Committee Vytjie Mentor, has threatened to take action to prevent MPs from divulging sensitive state information in their Portfolio Committees.

She clearly does not understand that, because Eskom is a public utility, the public have a right to such information, especially as Eskom’s losses are subsidised by all South Africans. It is Mentor’s job to create a platform in the Portfolio Committee for such information to be tabled, and interrogated. Instead, she seeks to assist Eskom in a cover-up.


The answer is that Vytjie Mentor, like many other ANC MPs, believes Eskom belongs to the ANC and not to the people of South Africa.

The ANC deploys its cadres to all public utilities. These cadres are bound by the ANC’s constitution to carry out ANC instructions. The ANC’s interests take precedence over any other. As a result, these enterprises offer tenders and contracts to ANC front companies, so that the ANC makes hundreds of millions of Rands, courtesy of the taxpayer. It is corruption on a grand scale. It is stealing from the South African public. It is making poor people poorer.

But, politically, the ANC must continue to pretend that it is the champion of the poor. That is why Vytjie Mentor has to cover up for Eskom. In doing so, she covers for the ANC.

Once again, the party’s interest trumps the public interest.

Many in the ANC do not understand that the constitutional role of political parties in Parliament – including the ANC – is to hold the government, and state enterprises such as Eskom, to account. They do not understand that it is inherently corrupt to deploy ANC cadres to state institutions, to give business to ANC front companies, to enrich the ANC.

They pretend it is BEE. But this is just a fig-leaf. It is corruption of monumental proportions that will turn South Africa into a failed state if it is not stopped.

This must be our frame of reference as we analyse the ongoing developments at Eskom.

In the coming weeks, the DA will endeavour to get to the bottom of the BHP Billiton discount. We will find out why Eskom is so keen to give massive discounts to this company and we will do what we can to establish the nature of the ANC’s relationship with BHP Billiton. We will leave no stone unturned.

This is the approach we are taking in the other major Eskom scandal involving the awarding of a multibillion Rand tender to Hitachi Africa which is part owned by the ANC’s front company Chancellor House.

This week, Hitachi claimed that it did not know the ANC was involved in the deal and that it believed Chancellor House’s profits would go to previously disadvantaged South Africans.

This is laughable. Hitachi has swallowed the corrupt “BEE” line.

Hitachi has admitted that the ANC’s front company, Chancellor House, paid only R1-million for a 25% stake in this mega-company. Hitachi obviously believed that, with the ANC as a 25% stakeholder, it could look forward to many state tenders and contracts. This belief was richly rewarded in the Medupi boiler tender. This illustrates the real motive of Hitachi. They should spare us the pious and patronizing pronouncement about benefiting disadvantaged South Africans.

I had an opportunity this week to study the Public Protector’s report on its investigation into alleged improper conduct by former Eskom Chairperson and ANC National Executive Committee member Valli Moosa in the Eskom-Hitachi Deal.

The report contains an inexplicable contradiction, which requires the Public Protector to explain.

First, the Public Protector finds that Moosa had a clear conflict of interest. The report says:

“There can be no doubt that Mr Moosa as a member of the [ANC] NEC and its Finance Committee owed a duty to the ANC to act in its best financial interests. Likewise, as the Chairperson of the Eskom Board of Directors it was expected of him to act in the best financial interests of Eskom. These two interests were therefore in direct conflict at the time when the awarding of the contract to the Hitachi Consortium was considered by the Board.”

Next, the Public Protector finds that Moosa failed to disclose his conflict of interest and recuse himself from the tender process as he should have done. It says:

“Mr Moosa failed to manage his said conflict of interests in compliance with the Conflict of Interest Policy of Eskom and therefore acted improperly.”

Inexplicably, despite all this, the report concludes that the contract awarded to Hitachi was not in any way affected by Mr Moosa’s improper conduct. On this basis, the Public Protector finds that:

“…the awarding of the contract by Eskom to an entity in which the ruling political party has an interest was not unlawful.”

The question is, on what basis does the Public Protector reach this conclusion? How could he know that Moosa, an ANC NEC member, did not influence the outcome in favour of a company 25% owned by an ANC?

The Public Protector reasoned that the fact that the contract was initially awarded to another company – Alston and Steinmuller – “supports the contention that the boiler contract was not awarded to the Hitachi Consortium because of its relationship with the ANC.”

At first glance, this seems plausible. After all, if Moosa was acting on behalf of the ANC, why was the contract initially awarded to a company that had no links to the ANC?

This is where things get really interesting. According to the Mail & Guardian, when Eskom announced the awarding of the contract in November 2007 it said that:

“… a consortium of engineering firms, Alstom and Steinmuller, had originally outscored Hitachi , and that the board had approved the award to them. Only after Alstom and Steinmuller hiked its price following a difference of opinion over the scope of the work were negotiations reopened with Hitachi which then emerged as the preferred bidder on an objective basis.”

In other words, after winning the bid, Alstom and Steinmuller voluntarily pulled out. As a source told the Mail and Guardian at the time, Alstom had “effectively disqualified themselves” by not meeting Eskom requirements.

The plot really thickens if you consider a ruling by the European Competition Commission in January 2007. The Commission imposed a record €750-million fine (R7,5-billion) on a cartel for colluding to fix prices and share out tenders.

Two of the main players in this cartel were none other than Alstom and Hitachi.

In its press release, the European Competition Commission said it had “put an end to a cartel which has cheated public utility companies and consumers for more than 16 years.” It found that members of the cartel met regularly “to divide projects and to prepare sham bids by the companies not supposed to win the tender, in order to leave an impression of genuine competition.”

This raises new and interesting questions about the Eskom tender process. Given Hitachi and Alstom’s previous corrupt relationship, it introduces the possibility that there may have been some form of collusion between the two companies in this instance.

Allowing Alstom to win the Medupi boiler contract – only for it to pull out later – would have given the eventual awarding of the tender to an ANC-linked company the veneer of legality and respectability required to ensure that Hitachi was awarded the tender with no come-backs. Indeed, that Hitachi was the second (albeit only other) choice gave the Public Protector sufficient grounds to conclude that the awarding of the tender was lawful, despite Moosa’s failure to manage his conflict of interest.

And, having disqualified itself from the boiler tender, what did Alstom gain? Alstom was the winning bidder of the R13-billion Eskom steam turbine contract – but only after Hitachi (again, the only other bidder) pulled out of the tender process because “it could not meet the original delivery schedule”. (“ANC Front wins Huge State Tender”, Mail & Guardian, 23 November 2007).

In other words, Hitachi and Alstom appear to have stood back to allow each other to win a part of the contract while maintaining the façade that this was a competitive process.

The evidence, although very powerful, must still be tested. As the opposition, it is our duty to raise these kinds of questions – particularly when the public’s money and interest is at stake. I have therefore written to the South African Competition Commission to request that it investigates the possibility that there was collusion in this tender process.

There is something rotten at the heart of the Eskom deals. It is a contagion that has spread from the rotten heart of the ruling party. We will do all in our power to get to the truth.

Signed Helen Zille

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