Johannesburg- Mkhuseli Faku, chairperson of one of Eskom’s biggest suppliers of fuel oil for its coal-fired power stations, has been caught in a double-dipping scandal with the power utility also caught napping on how it scrutinizes its suppliers.
Faku is the chairperson of FFS Refiners, one of the largest suppliers of industrial heating fuels in South Africa. FFS Refiners is majority-owned by Faku’s investment vehicle, Calulo Investments.
On December 4 2020, FFS Refiners reported a force majeure because of a fire incident at the Enref Refinery that morning.
The shortfall of fuel oil would have seen Eskom’s generation stations affected and could have resulted in serious electricity supply issues.
This forced Eskom to embark on an emergency procurement of fuel oil from alternate suppliers. The suppliers were Refinex, Eco Oil and Kepu Trading, a company Faku and his wife were active directors in.
According to internal Eskom communication, which we have seen, Kepu was paid R89-million for supplying grade 3 fuel oil to the utility.
Eskom’s spokesperson Sikonathi Mantshantsha said Eskom had not been aware of any relationship between FFS Refineries and Kepu.
“This was brought to Eskom’s attention by Kepu on the afternoon of 8 September 2021, in a letter to Eskom advising of Kepu’s intention to withdraw its tender on a transaction that is under evaluation. This was less than an hour after Eskom received an enquiry from a newspaper last week on this alleged relationship,” he said.
“The withdrawal letter does not make any mention of this possible relationship between Kepu and FFS. The withdrawal letter is dated 23 August 2021. Also on September 9 2021, FFS wrote an e-mail to Eskom explaining its relationship with Kepu. This relationship was brought to Eskom’s attention through the above communication for the first time. Prior to this, none of the two companies declared any relationship or conflict of interest.”
The tender evaluation Mantshantsha is referring to is the R12.9-billion three-year contract “for the supply, delivery and off-loading of fuel oil to all Eskom’s coal-fired power stations”. FFS and Kepu had bid for the contract until the latter withdrew its bid last month.
According to CIPC records, Faku and his wife, Lungelwa , were active directors in Kepu until their status changed to “resigned” on July 29, a day after the tender closed.
A deep-throat with intimate knowledge of the shenanigans at Eskom said the contract awarded to Kepu flouted the utility’s procurement processes.
“Nobody in Eskom bothered to check on who are the directors of Kepu before allowing them to first be awarded an emergency contract and to participate in the three-year tender, and this type of corrupt activity continues unabated.”
FFS Refiners is already a major beneficiary of Eskom’s contracts. According to a procurement strategy document prepared for Eskom’s investment finance committee, FFS Refiners was paid a handsome R4.5-billion between October 2018 and March this year, 48% of Eskom’s total fuel oil expenditure of R9.5-billion in the period.
When pressed on what action Eskom will take against Kepu and FFS, Mantshantsha said:
“Full disclosure is a key requirement in Eskom’s strict procurement processes and guidelines, and all the prospective tenderers are aware of this key governance principle. Eskom will conduct its own investigations and take appropriate action against any party that may have contravened any of the governance principles.”
Faku said he resigned as a non-executive director of Kepu on July 27 and that he holds an ”indirect minority” stake in the company. “I declared my minority interest in Kepu to the board of FFS, as well as my resignation from the board of Kepu in order to avoid any potential conflict [of interest] on my behalf,” Faku said.
“It is my understanding that, following an explosion at Engen’s refinery in December 2020 and the declaration of force majeure by many of Eskom’s suppliers as a result, Eskom approached Kepu as well as various other suppliers to supply it with product on an emergency basis and that Eskom followed an emergency procurement process. I do not have specific knowledge of the process, as to date, I have not had any direct day-to-day involvement in Kepu.”
FFS CEO Andrew Canning said: “FFS had a supply contract with Eskom but could not supply its contracted volumes because of a force majeure situation. Eskom then purchased fuel oil from other suppliers, including Kepu, on an emergency [ie not a tender] basis.”
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