Never ending tender haunts Eskom
Eskom’s lengthy, chaotic and acrimonious handling of a
multibillion-rand tender for new steam generators at the Koeberg nuclear
power station does not bode well for the government’s trillion-rand
nuclear procurement plan.
The tender award is again ready for final sign-off but the board’s
tender subcommittee has been unable or unwilling to do so, prolonging a
process that has already taken more than three years, which suggests the
confusion is continuing.
The two bidders are a consortium led by French nuclear vendor Areva and its American-Japanese rival, Westinghouse.
Westinghouse was twice on the brink of clinching the greater part of
the contract based on the recommendations of Eskom’s nuclear experts,
only for politically appointed decision-makers to block the award and
change the decision-making process.
The indecision means that the losing bidder could drag out the process
even further by seeking a judicial review of the award decision.
Any further delay could compromise Africa’s only operational nuclear
power plant. Its steam generators must be overhauled by 2018 or risk
what one senior Eskom source said is becoming a “nuclear safety matter”.
The interventions in granting the award can be justified but doubts
linger about the underlying motives. In particular, questions must be
asked about the length to which Eskom’s current board – and particularly
its tender subcommittee – were prepared to go to review and overturn
the recommendation of technical experts.
In April 2011, Malusi Gigaba – then the minister of public enterprises –
vetoed the board’s recommendation of Westinghouse for the lion’s share
of a three-part contract. His reason was that Eskom had not sought
ministerial approval of how the public money spent would boost local
Matjila at the helm
Gigaba dissolved the board soon
afterwards and appointed the current board, with Zola Tsotsi as its
chairperson and Collin Matjila as the chairperson of the board’s tender
The steam generator tender was cancelled and issued afresh, again in three parts.
In February last year, Eskom’s technical team resubmitted its
recommended winner – understood to be Westinghouse once again for the
bulk of the contract – to the subcommittee.
But, according to one Eskom executive, the subcommittee decided it
“wasn’t competent” to approve the award and commissioned an external
technical adviser to review the tender process.
The technical review, conducted by the European firm AF Consult, took
more than a year to conclude its work. The consultancy initially advised
that the technical team should not have issued the tender in three
parts – a compelling argument at the time because Eskom was having
problems integrating multiple contracts at its new Medupi power station.
The subcommittee then asked the technical team to invite both bidders
to submit prices for a single integrated contract, but without reissuing
The board had apparently realised that there was no time to redo the
tender if everything was to be in place for the 2018 deadline. But this
is hard to reconcile with the subcommittee’s insistence on an external
technical opinion that stalled the decision by a year.
The prospect of a single integrated
contract also raised the stakes for Areva and Westinghouse: both bidders
might have landed a slice of the three-part contract but it became a
The technical team insisted that the tender specifications they had drafted never envisaged a single contract.
They showed the subcommittee an internal legal opinion that backed
their position: the tender would have to be awarded in three parts or
The tender process risked descending into farce when the subcommittee
obtained external legal opinion, by advocate Tshepo Sibeko,
contradicting the technical team.
The subcommittee was advised that “the appointment of a single supplier
was always contemplated in the [original] tender process” and that
“there is nothing precluding Eskom from negotiating in parallel with
Soon afterwards, Eskom’s chief executive Brian Dames walked away from
the utility after a 27-year career. It is understood that one of his
many frustrations was the subcommittee’s intransigence over this
Appointment fails to impress
Matjila, who had
chaired the subcommittee that rejected the technical team’s
recommendation, succeeded Dames as interim chief executive. It sparked
howls of protest, because of damaging allegations about his conduct as
chief executive of Cosatu’s investment arm, Kopano ke Matla.
As the interim chief executive, Matjila relinquished his position as
the board subcommittee chairperson, to be replaced by Neo Lesela, but
Matjila has continued to play a role in the tender saga.
Days after receiving Sibeko’s legal opinion, the subcommittee also
received AF Consult’s final technical report. This dropped a bombshell,
accusing the Eskom technical team of bias towards Westinghouse during
the 2012-2013 tender process.
While the outraged technical experts were tied up trying to respond to
these allegations – effectively neutralising them at a critical moment –
the board’s tender committee instructed the acting commercial executive
Matshela Koko to get the ball rolling on a competitive negotiation that
would pit Areva against Westinghouse for a single consolidated
Sidestepping a full tender process, a competitive negotiation is the equivalent of a sudden-death penalty shoot-out.
The South African law firm Binnington Copeland & Associates drew
up the negotiating ground rules and Eskom asked a European association
of nuclear utilities to recommend an expert to lead the negotiations.
Enter Rudy Koenig, a veteran of the German nuclear industry.
No longer suspects
In mid-June, four days after
Eskom formally invited Areva and Westinghouse to participate in the
competitive negotiations, Matjila wrote to the technical team to inform
them that they were no longer suspected of bias.
“Most anomalies are explainable and those that are inexplicable are due
to a difference of opinion [between AF Consult and the technical
team],” he said.
The competitive negotiation closed at the end of July. But, facing an
impossible winner-takes-all choice at the end of a disastrous process,
the board subcommittee now appears hesitant to reap what it sowed.
Although Eskom executives have privately expressed despair about the
latest delays, Koko said the utility is “confident that the process we
are following will result in procurement that is cost effective,
competitive, fair, equitable and transparent”.
“We work within an extremely complex technical, financial, governance and regulatory framework,” he said.