Ajay and Atul Gupta. File Image

JOHANNESBURG - Global consultancy McKinsey and the Gupta linked company, Trillian, have been outed in a report by Fin24 on how they received their R1.6bn payout for “turnaround” advice given to Eskom.

The report indicated that Eskom actually ignored warnings that the contract might be illegal but went ahead with it anyway. 

The report states that G9 Forensic carried out a report, commissioned by Eskom, on how Eskom's own legal advisor warned against getting into an agreement because the proposed revenue model, might have been illegal.

It is believed that leaked emails revealed how McKinsey and Trillian, plotted to extract billions in fees from Eskom, including consulting on nuclear.

McKinsey told them via a statement, "The fees we charged at Eskom are in line with similar projects we, and other firms, undertake in South Africa and elsewhere around the world. We are proud of our work at Eskom and stand fully behind the impact and value we delivered.” While the counterpart Trillian stated that they charged fees for the appropriate work done for Eskom. 

In December 2015,  Trillian Capital Partners along with Mckinsey were believed to have sat down to divide the R9.4bn in consulting fees between the two companies that they planned to receive from Eskom.

File Image: IOL

A contract of 100% “at risk” was then agreed with Eskom, which meant that McKinsey would get a percentage of any upside it achieved for Eskom.  

The report further stated that McKinsey said in a written response: “A growing share of our work is undertaken ‘at risk’, meaning we are paid based on agreed performance improvements as a direct result of our work.” If McKinsey could find savings or benefits it would be entitled to just over 10%. But with no limit set and the potential for manipulation, there was a risk that McKinsey’s fees could soon spiral out of control.

As part of Eskom's supplier development requirements, Mckinsey had to ensure that 30% of the contract went to a local, black-owned firm. 

It is believed that this was where Trillian would come into play. 

The Fin24 states that according to leaked emails, communications between McKinsey and Trillian revealed how consulting fees from Eskom projects under proposal would potentially be split.

The report indicates that McKinsey was to receive 65% and Trillian 35% from work in the primary energy division of Eskom, where coal was procured. This part of the business was expected to earn about R1.7bn in fees throughout a 4 year period. 

In total, McKinsey and Trillian projected they could extract R4.96bn and R4.46bn respectively – all from Eskom, a state-owned entity that recently told the energy regulator it desperately needed a tariff increase of 20% next year, Fin24 says.

Fin24 further reported that it was unlikely that Eskom was privy to these various spoils cooked up between the two companies, however, inside Eskom opposition to the turnaround project, for which a contract had yet to be signed, was growing.