Kusile free-for-all exposed: How Eskom 'crooks siphoned' millions from project

Millions of rands in unnecessary contracts, a spending spree on furniture, and even a donation to a foundation chaired by former president Jacob Zuma's fiancé — today the Sunday Times brings you the inside story of the free-for-all that saw costs for Eskom's half-completed and behind-schedule Kusile power station spiral to R161.4bn.

A revealing series of investigative reports by law firm Bowmans, obtained by the Global Initiative Against Transnational Organised Crime, paints a picture of a spending frenzy overseen by top Eskom executives, some of whom are now facing fraud and corruption charges.

Among the revelations are:

• A report that Eskom bosses and contractor representatives allegedly conspired to plan a costly review of progress at Kusile, with one executive brazenly saying in an e-mail: "hahahahaha, I still need to support my young wife and kids";
• As Kusile's costs spiralled, Eskom's former group capital executive, Abram Masango, allegedly took a personal interest in R22m worth of furniture bought for an R840m "ghost town" intended for Kusile employees but now lying abandoned. In one instance Eskom bought a R3,500 pool table for more than R18,000 (see page 2);
• An Eskom executive ensured that the lead contractor, a joint venture by Stefanutti Stocks and Basil Read (SSBR), paid R100,000 to a foundation linked to Zuma's family. Zuma himself attended a gala dinner to launch the foundation, which appears to have been its only public engagement; and
• The Special Investigating Unit (SIU) has referred criminal cases against 66 individuals or entities to law enforcement agencies, 47 of which relate to payments made by three main Kusile contractors (see page 2). Massive delays in building Kusile have contributed to the critical electricity shortage crippling SA's economy

The documents were first reported last week by News24, which wrote that there were "red-flagged" tenders for R178bn that Eskom awarded to local and international companies tainted by corruption or misconduct.

The Bowmans reports, commissioned by former Eskom CEO Phakamani Hadebe in 2018, have fed into SIU investigations into about R172bn of Eskom procurement, and ongoing criminal cases against Masango, former Eskom senior manager for capital contracts France Hlakudi, and businessman Maphoko Kgomoeswana. All have indicated they will plead not guilty.

The investigations also reveal the blueprint for how corrupt Eskom employees, together with senior employees of Eskom contractors, would allegedly siphon off millions of rands by unnecessarily extending existing projects, making unjustified claims, and creating unnecessary contracts. They would then share the spoils.

Some of the payments extended to third, uninvolved parties through donations.

One of the reports states that Hlakudi helped secure a donation of R100,000 - although R5.1m was requested - from SSBR for the Janozuma Foundation, which is chaired by Zuma's fiancé Nonkululeko Mhlongo and named after their two daughters.

"How much? Who is that?" Mhlongo said when asked about Hlakudi. "No, I don't know anything about [the donation]."

An investigation progress report states: "On 30 October 2015 Hlakudi wrote to [SSBR officials] advising that SS would be contributing R100,000 towards [Janozuma]."

The report continues: "The Janozuma Foundation is a voluntary association [aiming] 'to empower children and youth through talent scouting, nurturing and mentoring'."

The foundation wanted R5m for its Music on Wheels Programme to introduce music education to rural schools, the report says.

The foundation was launched at a gala dinner at the Pietermaritzburg City Hall in November 2015, which Zuma attended and spoke at, alongside his daughters with Mhlongo, Jabulile and Nomcebo. Zuma appeared in a recent TikTok dance video with Mhlongo and their daughters.

However, the gala launch appears to have been the only thing the foundation ever did. Mhlongo said it ceased to exist because "there was no funding … The last time we did something was years ago. I think it was during the launch or something like that."

To date we have been unable to obtain any evidence that Khabangwane conducted a productivity study … The manner in which this agreement was implemented was irregular, and misrepresentation to Eskom and/or SSBR is likely to amount to fraud and/or gross misconduct

—  Investigators

Hlakudi could not be reached for comment and SSBR said it has "no recollection of Janozuma Foundation, or the referenced request for donation. What we can say with confidence is that no payment was made."

SSBR is one of several entities Eskom identified last year as having been overpaid by R4bn on five capital contracts, including the construction of Kusile.

Last July, SSBR denied Eskom's allegations, instead claiming that Eskom owes it money for events that happened onsite that affected its ability to complete specific work on the project. It also said payments it received, which Eskom alleges relate to "unsubstantiated claims", were all made after an independent engineer signed them off and that an Eskom audit had found this.

But in their reports, Bowmans investigators said that SSBR's 2011 Kusile construction contract, valued at R1.79bn over five years, was hiked by a further R903m through irregular additions to the original scope of work. The build deadline was extended to 2017, but Kusile remains incomplete.

Meanwhile, in another example contained in e-mails in Bowman's files, three Eskom officials, including contracts manager Sibonokuhle Langa, an engineer and his assistant, allegedly colluded to siphon off R15m in 2016. This was done through the creation of a year-long productivity study on the Kusile project — then subject to severe cost and time overruns - to be done by SSBR subcontractor Khabangwane through a variation order on SSBR's contract.

It is not clear whether the study was ever done. Having initially billed just over R11m, Khabangwane was paid R15m because the study was extended by five months. Khabangwane was registered by its sole director, Mpumalanga provincial government employee Lydia Masilela, just two months before being given the contract. Masilela could not be reached on any of her four phone numbers.

To prove there was no need for the study, Bowman's investigators quoted e-mails between the three officials in which they expressed their cynicism.

When Langa asked for feedback on his proposal, the engineer's assistant responded: "no comments. You are a spin doctor", to which the engineer wrote: "I said bullshitter".

Langa's response was: "hahahahaha, I still need to support my young wife and kids ."

Langa, who remains employed by Eskom, declined to comment, saying he needed Eskom's permission to do so.

When sent the first of 17 invoices from Khabangwane, an SSBR contracts director sent this message to two colleagues: "Gents, another deal from Eskom - I told them I need a 20% handling fee. They told me the money is included in MOS."

Investigators note that MOS refers to "material on site", a standard category on a contractor's payment certificate. The contracts director's e-mail suggests there were many such contracts.

Instead of payments to Khabangwane showing what they were actually for, they were billed as "PG Sundries", and "roof wetting" in SSBR's records.

"To date we have been unable to obtain any evidence that Khabangwane conducted a productivity study … The manner in which this agreement was implemented was irregular, and misrepresentation to Eskom and/or SSBR is likely to amount to fraud and/or gross misconduct," the investigators say.

The investigators also say SSBR's conduct illustrates "the wilful and intentional facilitation of a potentially fraudulent scheme, even demanding a 20% facilitation fee".

SSBR said Eskom appointed Khabangwane. "Eskom … are the only ones privy to the detail around the nature and scope of the study," it said. "The SSBR JV was instructed by the engineer and later by [his assistant] to pay Khabangwane Holdings and variation orders were issued to this effect."

It said a handling fee was "typically charged to cover the associated costs" when subcontractors were appointed, particularly because "there was normally a not insubstantial delay between the monies being paid and recovered".

"The SSBR JV was not contacted at any stage by Bowmans or the Hawks. SS … is confident that once the investigations have been completed it will be established that it acted lawfully," it said.