Eskom, one of the state-owned entities at the heart of state capture, is on a mission to get all the money back it lost through the rewarding of what it views suspicious contracts, even if it forces a showdown with high-profiled companies – the latest being one of the “big four” accounting firms in the country.
PwC dug in its heels on Monday after Eskom demanded it pay back R95m in fees it was paid for work on a “capital scrubbing project”, an exercise which would supposedly help Eskom save billion in capital expenditure.
In an emailed response to Biznews, Eskom spokesperson Sikonathi Mantshantsha said Eskom continues to review all the suspicious contracts and “where we uncover any evidence of unlawful activity, Eskom will recover any funds due”.
To show its determination Mantshatsha said: “For now we have recovered R1.1bn, including interest, from McKinsey & Co. We agreed with Deloitte Consulting that no evidence of corruption could be found in the deal in which they settled with Eskom and paid back R150m plus VAT.
“The contract with Tegeta Exploration & Resources was earlier in the year set aside by the high court. Tegeta is in business rescue and Eskom’s claim is R1.3bn, making us the largest creditor.
“From Trillian we are claiming R600m plus interest, [and] we are in the process of identifying assets to recoup the money.” Mantshantsha said.
Mantshantsha described the deal in which PwC, Nkonki Consulting and Aurecon was involved as “unlawful, unconstitutional [and that it] did not have the requisite approval of the National Treasury. “Thus it is null and void.”
However, PwC said its investigations have not identified any basis to entertain Eskom’s demand.
The showdown between the two giants follows a report on Monday on investigative journalism website amaBhungane that a confidential investigation conducted last year delivered a damning assessment of PwC’s consulting work at Eskom. The report, dubbed the G9 report, among others described PwC’s fee structure as “patently unlawful and stupendously egregious”, amaBhungane wrote.
However, the auditing and consulting firm told Biznews that it “was awarded the capital scrubbing project after a competitive bidding process, and through the project identified approximately R56bn in potential savings for Eskom – among a number of other achieved project deliverables”.
According to the amaBhungane report PwC’s fee structure allowed for it to claim up to 7.5% of any “savings” (capex cuts) that it identified. But Eskom employees told the G9 investigators that they questioned why PwC was allowed to charge for work they did.
amaBhungane said PwC initially invoiced Eskom for R270m for identifying how Eskom could cut R9.73bn from its capex budget by reducing capacity at the “no load” and “low load” stations: major refurbishments that could be cancelled, parts that would not need to be purchased etc.
But when PwC tried to get these savings signed off, Eskom managers refused on the basis that Eskom’s own staff had already identified more than R10bn in savings at these same stations and that for the most part, PwC’s work had simply verified the work Eskom staff had already done, amaBhungane reported.
amaBhungane quoted from what it called a scathing eight-page memo compiled by Eskom’s chief legal adviser, Leena Ramprsad, who said:
Eskom’s contract manager ‘advised that a majority of the risk-based invoice amount (approximately R260m) is subject to dispute by Eskom… The savings were identified by Eskom but only verified by the Consultant and thus there was NO value added.
Like the controversial McKinsey-Trillian contract with Eskom, the fees were supposedly performance based or “at-risk” and would depend on how much “capital scrubbing” PwC and its subcontractors could achieve. The more they cut Eskom’s spending, the more they would receive, according to amaBhungane.
PwC, however, said it was ultimately paid “only on a time and materials basis” for the work of PwC professionals at Eskom, that saw “on average 27 full-time equivalent PwC staff per day on the project for a period of 12 months”.
“The quantum of fees referenced by Eskom in its letter of demand was for the entire delivery team, comprising PwC and three other professional services firms,” the auditor said.
But Eskom is adamant.
“More recovery action is imminent,” said Mantshantsha, once a fierce critic of Eskom.
Energy expert Chris Yelland was hopeful that the various professional associations and statutory registration bodies would take firm action “to root out corruption and malfeasance within their ranks”.
He said all the “scams between former Eskom management and so-called management consultants and accountants bring disgrace onto these management consultants and the accounting profession as a whole”.
He was also hopeful that the prosecuting authorities would take action where necessary.
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