McKinsey geared to pay back 'tainted' R1 billion charged to Eskom
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Global consultancy firm McKinsey stood ready to repay the money it earned from a flawed Eskom deal, but did not know where to direct the R1 billion refund, senior partner Dave Fine told the parliamentary inquiry into allegations of state capture at the power utility on Wednesday.
"McKinsey does not want tainted money. So if the court decides that payment was valid, McKinsey will still give that money back to South Africa," said Fine, who is now based at the firm's London office.
"The amount that we are talking about is the billion rand that McKinsey was paid by Eskom."
Fine hastened to say that McKinsey's decision did not imply guilt on the part of the company, but was based on the discovery that Eskom entered into the deal without proper approval from the National Treasury.
"We are not paying the money because we did something wrong. I just want to be explicit about that. We went into the relationship with Eskom in good faith and they told us they had the Treasury approvals for the at risk arrangement. The fact that they did not is why we want to give back the money," he said.
"As I state now, I think the contract is valid because we did real work."
He conceded that McKinsey allocated staff to work with Eskom before a contract was in place, but said this was not done on a cynical assumption that it would secure the contract, regardless of procurement rules. In fact, there was concern within McKinsey that it may not secure the contract.
Fine also conceded that the R1 billion fee was too steep and should have been capped.
"We should have been more sensitive to the country and Eskom's economic situation."
Asked by the evidence leader in the inquiry, Ntuthuzelo Vanara, why McKinsey was still waiting to pay the money back, Fine said Parliament should help McKinsey establish if it should go to Eskom or the South African taxpayer.
He said there was a risk that it would "pay twice" if it refunded the Treasury and the court later held that the money was owed to Eskom.
He insisted the company did honest work for Eskom and also defended its record during a nine-year relationship with Transnet, where it partnered with Regiments, at that point still owned by Eric Wood, who would later head Trillian.
Eskom's contract with McKinsey to consult on its turnaround strategy is the subject of a high court review. It saw Trillian earn more than half the amount paid to McKinsey to serve as the consulting firm's development partner.
A whistleblower from Trillian, Bianca Goodson, earlier this month told the inquiry she quit when she realised it had been set up to secure contracts with the state for companies like consulting firm McKinsey and earn large sums for doing very little work.
“It was created to simply get 50 percent of certain revenues,” Goodson testified.
Eskom chief financial officer Anoj Singh was caught out after claiming that the payments to Trillian and McKinsey were found by another international consulting firm Oliver Wyman to have been entirely above board. He was subsequently contradicted by Oliver Wyman and has been suspended.
In September, Eskom said it had sought the co-operation of McKinsey and Trillian in the form of repaying R1bn and R564m respectively as it seemed to have been "unlawfully paid out in 2016 and 2017”.
Fine told the committee McKinsey had no idea they were working with a partner linked intricately to the Gupta family and extensive internet searches had yielded nothing untoward about Salim Essa and Eric Wood, key players in the family's business empire, at the time.
MPs said they found this hard to believe, but Fine insisted that in 2015, contrary to today, there was little to be found on Google on the two men.
In his written submission to the inquiry, Fine said that it was in March 2016 that he pressed Wood for more information on Trillian's board members and shareholders and "received concerning answers".
He said McKinsey's Global Risk Committee ended the company's relationship with Trillian the following day, adding: "We were not careful enough with whom we associated with."
He conceded that McKinsey should have been more proactive when reports of state capture emerged and should have cooperated with the probe into Eskom carried out by senior counsel Geoff Budlender.
Fine said he had "no idea" why he was invited to the Gupta family wedding at Sun City in 2013, which caused a scandal because guests were allowed to land at the Waterkloof military air base, and did not attend.
Former finance minister Pravin Gordhan asked why McKinsey has not dealt with the Eskom controversy at a higher, and more public level and suggested that its directors were "very shy or very arrogant".
The inference was that South Africa accounted for too small a percentage of the company's global earnings for it to take the matter seriously, he said.
Fine responded that McKinsey was a media-shy company, but senior staff had been in South Africa to discuss the matter in depth.
"We are not a firm that is comfortable in the press. It is a very difficult situation, internally the scope of the discussion is very wide and very deep."
Gordhan shot back: "That is in the best traditions of the underground that we used to have in South Africa."