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3 minute read
1 Mar 2019
1:13 pm

Pillay tells Zondo inquiry Eskom flouted its own rules in R25bn Huarong deal


The Eskom treasurer says the unsolicited proposal to fund capital projects was pursued by the utility.

South Africa - Johannesburg - 01 March 2019 - Eskom Treasurer Andre Frank Pillay, appears before the commission of inquiry into allegations of state capture. Picture: Itumeleng English/African News Agency(ANA)

Eskom treasurer Andre Frank Pillay on Friday told the Zondo commission of inquiry into state capture how Eskom flouted its own procedures when it signed a R25 billion unsolicited capital funding proposal with a Chinese consortium.

In 2015, Eskom entered into a dubious agreement with China-based Huarong Asset Management, which had approached the cash-strapped power utility with a proposal to grant it US$1.5 billion (around R22 billion) for Eskom to build or refurbish power stations.

Pillay said the unsolicited proposal to fund capital projects was pursued by Eskom even though its terms were erroneous.

He said that Eskom’s rules and procedures were flouted, and that Eskom had pushed through with the deal even after realising that Huarong was not going to be able to deliver on its promises.

Huarong had partnered with a South African-based electrical engineering contractor, Tribus Energy owned by Rajeev Thomas, to establish a BEE-compliant consortium, Huarong Energy Africa, which would implement this proposal to Eskom.

At the time, Eskom – which raises capital from domestic bonds, international markets, commercial paper loans, multi-lateral institutions, and export credit agencies – was looking for an funding offer that did not rely on government guarantees to resolve financing challenges.

Pillay said an Eskom executive, led by former chief financial officer Anoj Singh, traveled to China to meet a Huarong delegation for discussions.

At this meeting, Pillay said a gentleman called Rex Madida introduced himself as political deployee of the African National Congress and was part of the Tribus group.

He said he had his concerns with the manner in which Eskom dealt with the Huarong deal, even though it was being punted as innovative funding which would see it receive a cash injection without giving up control of the company and have no damage on the balance sheet.

Pillay said Eskom had decided to issue a request for information (RFI) notice, which he said was “a new process”, as the power utility would normally have issued a request for proposal (RFP) to ensure there were no similar proposals out there.

He said Huarong was appointed as the preferred bidder among the 12 that had responded, which included JP Morgan, Absa, and Rand Merchant Bank.

“We wanted funding to be greater than R15 billion and that would not trigger defaults against debt covenants, to be in line with Eskom’s capital projects, and to be implemented within reasonable short period of time,” Pillay said.

When the deal’s “non-binding” term sheet was presented to Eskom, Pillay said he realised there was a commitment fee of 0.8% amounting to US$R24 million, and a o.2% cancellation fee amounting to US$30 million if Eskom repudiated or canceled the deal.

Pillay said this deal was never presented to Eskom’s internal legal department as Eskom relied on an external legal firm, White and Case.

Pillay said Singh pressured him to sign the non-binding term sheet as Huarong partners wanted to be at ease about the good working relationship.

“It was sent to me and I was uncomfortable about signing term sheets because we were not used to signing term sheets like this, but Singh said I should not to worry because it was non-binding. It was unprecedented to sign term sheets,” he said.

“But they took out the non-binding clause of the contract and we maintained that we would need all the government guarantee that the process that I had followed according to the board was negotiated, but [not concluded]. We did not rely on [the] internal legal department, but external [ones] to advise us on this.”

Pillay continues his testimony.

– African News Agency

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