South African Lawmakers Refer Eskom Chairmen for Criminal Probe

(Bloomberg) -- South African lawmakers referred the names of three former chairmen of the country’s state-owned power utility to law-enforcement agencies after they found the individuals conducted themselves unethically and possibly criminally during their time at the producer.

Zola Tsotsi, Ben Ngubane and Zethembe Khoza, together with former Eskom Holdings SOC Ltd. Chief Executive Officers Brian Molefe and Matshela Koko, are among the names that parliament’s portfolio committee on public enterprises is asking the Directorate of Priority Crime Investigation to focus its probe on, it said in a report released Wednesday.

Key Insights:

• In June last year, the committee resolved to probe governance, procurement issues and the financial sustainability of the cash-strapped company that produces almost all South Africa’s power.
• Eskom is struggling with high debt and declining demand as it takes steps to emerge from multiple scandals involving graft and mismanagement. In the meantime, the threat of blackouts looms, which would add pressure on the economy that plunged into a recession earlier this year.
• President Cyril Ramaphosa has pledged to stamp out corruption since taking over from Jacob Zuma in February. That has included replacing directors at a number of state companies including Eskom, which ratings companies have identified as a key risk to Africa’s most-industrialized economy.
• This is the second report released this month that refers Eskom board members and executives to prosecutorial authorities. A study by Fundudzi Forensic Services, which the National Treasury contracted to investigate the appointment of McKinsey & Co. to advise Eskom and state logistics company Transnet SOC Ltd., and coal procurement from a company controlled by the Zuma-connected Gupta family, also recommended criminal investigations against Molefe and Koko, among others.
• The committee said the former chairmen and executives “reasonably ought to have known or suspected” that their failure to report the flouting of governance rules relating to some contracts “may constitute criminal conduct”
• Former public enterprises ministers Lynne Brown and Malusi Gigaba were “grossly negligent in carrying out” responsibilities as the representatives of the sole shareholder in Eskom.
• The contracts concerned included the replacement of steam generators at the Koeberg nuclear-power facility; the replacement of boilers at the Duvha coal-fired plant; advisory contracts with McKinsey and other consulting companies and the coal-supply agreement with the Gupta family’s Tegeta Exploration and Resources Ltd.
• The committee said Ajay, Atul and Rajesh Gupta, as well as Zuma’s son, Duduzane, were among 10 “external persons” who may have unduly influenced Eskom decisions

--With assistance from Paul Vecchiatto.

To contact the reporters on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net;Ana Monteiro in Johannesburg at amonteiro4@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Renee Bonorchis, Ana Monteiro

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