Eskom won landmark legal challenge to scrap R8 billion Econ Oil deal

Power utility Eskom has won a landmark legal challenge to scrap an R8 billion tender agreement with fuel oil supplier Econ Oil.

The case was argued virtually in the South Gauteng High Court in Johannesburg on 9 June, where lawyers for Eskom argued that the multibillion-rand tender was “patently unlawful” and clearly contravened key provisions of public procurement policy.

In a judgment handed down on Tuesday, Judge Bashier Vally said that the tender was blemished by “irregularity and illegality of the most fundamental kind”.

He ruled that Eskom’s board’s decision to award the tender to Econ Oil and two other fuel oil suppliers in late October 2019 be set aside. In addition, he also ruled that no binding contract had been entered into between Econ Oil and Eskom.

Vally also had harsh words for the power utility’s board, questioning how it could have entered into such an agreement with Econ Oil in the first place.

“Had the board applied its mind properly to the matter it would have had no choice but to forsake the outcome of the negotiations [with Econ Oil and others]. Instead, it chose to adopt it. By do doing it perpetuated the illegality and gave it legal effect,” he said.

‘A vindication’ for Eskom

The utility’s CEO André de Ruyter said in a statement that the ruling showed the utility’s commitment “to investigate and set aside all contracts where evidence of corruption has been uncovered”.

“This court judgment is a vindication of the board’s and management’s unwavering stand to protect Eskom’s financial and operational interests from corrupt elements, thereby safeguarding the public purse,” said De Ruyter.

Econ Oil did not immediately reply to a request for comment.

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Background

In early 2019, Econ Oil won an R850 million contract to supply the Hendrina power station in Mpumalanga with fuel oil. The contract was a small part of a larger tender to supply 16 power stations with fuel oil for a period of five years. Sasol and BP won the other bids.

But these initial tender awards were controversially scrapped a few months later. They were replaced by direct “negotiations” with all the bidders, which Eskom now says were clearly illegal. As a result of these negotiations, Econ was in August 2019 engaged to provide fuel oil to 11 power stations. Sasol was awarded four power stations, and FFS Refiners one. BP was not awarded anything.

The value of Econ’s award increased from around R850 million to over R8 billion. In October 2019, Eskom’s board approved the deal.

Three months later, in January 2020, André de Ruyter was named the utility’s new CEO. He set about undoing the deal, which eventually resulted in a legal bid to have it declared null and void.

News24 Wire