Johannesburg - Power utility Eskom wants companies that do business with it to issue a 30-percent equity stake to it at no cost.
In an unprecedented move, Eskom told a meeting of its boiler-serve contractors in May that the board wanted major industrial suppliers Actom, Babcock and Steinmuller to issue equity of 30-percent to it that would be held by Eskom Enterprises – otherwise known as Rotek, a wholly-owned support service subsidiary of Eskom.
Business Report is in possession of a copy of the minutes of a meeting that took place at Eskom’s Megawatt Park headquarters on May 8, at which Eskom pressed representatives of the three suppliers on the 30 percent equity demand. The utility said it would only offer the order book but would not pay for the shares.
If the move is sanctioned, there are concerns that it could send shockwaves through the supplier community and raise fears about doing business with Eskom at a time when the embattled utility is involved in a massive expansion program involving the construction of mega-power stations Medupi and Kusile.
Deal structure
The boiler-serve contractors are critical to the optimal functioning of the power stations.
Even though there were no clear indications on what the next steps on the equity demand would be, the parties agreed to meet again, according to the minutes of the meeting in May.
That meeting also discussed the term for the boiler-serve contract – now expected to run from April 1 next year to March 31, 2026.
The minutes state that it will be up to the three contractors to decide on how they would structure the deal for the equity stake.
“The 30 percent equity is only for work related to boiler maintenance,” state the minutes. “This will also limit Eskom’s risk on the other businesses that suppliers are involved in that are not related to boiler maintenance.”
At least three of the contractors’ representatives, who were present at the meeting, confirmed the authenticity of the minutes, and claimed that they were a true reflection of the discussions that took place.
One said when they raised questions about how the deal would work as they also needed to report to their shareholders, they were told the proposal was a board resolution and that there was nothing that could be done about it.
“It was strange because we were being told like school children that it was not a case for negotiation,” said the contractor.
“It was an either-or kind of a situation, we were left dumfounded and by the time the meeting closed, we knew that there was very little we could do to persuade Eskom otherwise,” the contractor added.
The hour-long meeting was chaired by Charles Kalima, a senior manager in Eskom’s group technology and commercial division.
The technology and commercial division is headed by Matshela Koko, who was suspended in March together with former chief executive Tshediso Matona and two other senior managers. Three of the four, including Matona have since resigned after accepting golden handshakes and Koko is understood to be locked in talks with the utility to negotiate a lucrative exit package.
Attempts to reach Kalima were unsuccessful at the time of going to press. Eskom was also not immediately available for comment.
One other contractor described the proposal as tantamount to extortion.
Bully tactics
“The bottom line is that we are not given a choice,” said the contractor who spoke to Business Report on condition of anonymity.
“If we do not accede to the demand, we run a risk of losing business with Eskom and that to us is a very lucrative business that could last for years.”
Eskom described the requirement for the 30 percent equity as “the board’s mandate, (and) Eskom want (sic) to drive equity ownership in strategic suppliers”, the minutes show.
The minutes also note that “refusal to accept Eskom conditions will run a risk of not getting a contract.”
The DA yesterday described Eskom’s proposed equity deal as bullying.
DA spokesperson on public enterprises Natasha Mazzone warned that the deal was just the tip of the iceberg and that Eskom could use it to force other contractors with which it had deals to extend the equity demand.
“This is the problem with the monopoly because they are the sole energy producer so they basically can force everyone to these kind of demands… it’s bully tactics not only on the contractors but also on the rest of the country,” Mazzone said.
“That is why it is essential that we break the monopoly to ensure that these playground bully tactics do not thrive. They are unacceptable.”
Business Report