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South Africa

Fin24.com | Ex-Eskom chair: Cancelling Gupta-linked New Age breakfast deal would have cost even more

Former Eskom board chairperson Zola Tsotsi said it was better for Eskom to keep a R43m deal with Gupta-linked New Age newspapers, than to suffer losses from cancelling it.

Tsotsi appeared before the state capture commission on Friday - his second day of testifying - where he shed more light on an irregular sponsorship contract concluded by Eskom and the New Age back in 2014.

The inquiry has been investigating allegations of state capture, corruption and fraud at state entities since August 2018.

The New Age breakfast sponsorship deal, signed off in April 2014, by former CEO and board member Collin Matjila, was a subject of investigation after a whistleblower complained that Matjila did not follow due processes for approval.

The final report of the probe, conducted by forensic firm SNG, was circulated among board members in November 2014. It advised Eskom to seek legal opinion on the matter, including disciplinary actions to be taken against implicated employees - Matjila and Chose Choeu.

Eskom appointed law firm Ledwaba Mazwai Attorneys which in turn put the board three options to consider. This was to either ratify the contract, cancel it altogether or approach the New Age in goodwill to renegotiate the terms of the contract.

Tsotsi relayed to the commission that because of the probe into the contract, the option of approaching the New Age in goodwill was off the table. So the board evaluated either cancelling or ratifying it.

Ledwaba had explained to the board that cancelling the contract would open the power utility to litigation. Ratifying the contract would allow Eskom to derive some value out of it, Tsotsi said.

The board agreed that the contract was "bad" in that it was irregular, but not in terms of the commercial value that it could offer, Tsotsi explained.

"Our understanding was that if we were to ratify the contract, then the only thing we would insist on, is that some means or mechanism be found to extract value from the contract.

"We decided it would be more detrimental to the company if we cancelled the contract because we would open ourselves up to claims, of non-performance and also possible legal costs that arise out of that," Tsotsi said.

'Better of two evils'

Ratifying was the better of the "two evils", he added. "We took the view that we should get optimal value from what is left of the contract," Tsotsi said.

He explained that cancelling the contract would amount to fruitless and wasteful expenditure, stemming from litigation. Ratification was considered to avoid loss, said Tsotsi.

Deputy Chief Justice Raymond Zondo queried whether keeping the R43m contract in itself would be incurring fruitless and wasteful expenditure.

To this Tsotsi replied that its attorneys advised it was important to establish the commercial value of the contract. Tsotsi said that this potential value was spelled out in the contract. Furthermore, the board decided it would be up to management to ensure that the potential value stated in the contract be delivered in reality.

"The board insisted that management must do its utmost to get value out of this contract … without extracting value out of the contract, it would result in an exercise of fruitless expenditure," Tsotsi said.

Zondo also asked what would come to recommendations that Cheou and Matjila be disciplined if the irregular contract becomes ratified.

To this Tsotsi said that he would not know but that it would depend on the "reasons for ratification" and how management and the board viewed the situation. At this point a new board had been appointed in December 2014 and a new CEO, Tshediso Matona, had started his term in November 2014.

Matjila, who had returned to the board after Matona took the helm in November, resigned from the old board in early December 2014. Tsotsi said lawyers advised that it would not be worthwhile to discipline Matjila as he left the organisation.

Tsotsi concluded his testimony on the New Age matter on Friday. He is expected to return to the commission to testify on further Eskom-related issues.

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