Battle For Eskom’s R5.2 Billion Fuel Oil Tender

Andre de Ruyter, Group Chief Executive of state-owned power utility Eskom

Andre de Ruyter, Group Chief Executive of state-owned power utility Eskom

South Africa, Durban – The battle for Eskom’s R5.2 billion fuel oil tender is set to drag on as the power utility has challenged the jurisdiction of an adjudicator on the matter.

Econ Oil and Energy, a black-owned company that won the fuel oil supply tender, has taken the matter for adjudication after the parastatal decided to renege on implementing the tender based on untested allegations levelled against the company.

Last week, the parastatal filed a submission contesting the jurisdiction of an adjudicator in the matter. This, despite having been warned by the National Treasury about possible litigation, should Eskom go ahead with the cancellation.

In November last year, Econ Oil, after bid processes were concluded, received a letter of award from Eskom.

Eskom said it did not recognise the adjudicator’s jurisdiction to determine the dispute in question, including the existence of a contract between the two parties.

Econ Oil, owned by an attorney, former acting judge, and businesswoman Nothemba Mlonzi, has supplied Eskom with fuel since around 2003.

In the submission, Eskom said the award letter of November 6, 2019, was conditional or subject to Econ Oil coming up with the supply back-to-back agreements.

An Eskom source said that “the supply contracts as per bid letters of support were in place for Econ Oil, and all the other bidders. Back-to-back agreements were never part of the bid requirement.”

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In her response, Mlonzi contended that a bidding contract was concluded by the letter of acceptance sent to Econ.

She also enclosed letters from two refineries that concluded supply contracts with Econ.

Eskom’s signed Procurement and Supply Chain Management procedure state that “the acceptance of the tender constitutes a binding contract and not the signing of the contract”.

However, Eskom contended that a long-term contract between the parties had not been concluded. Eskom has been procuring fuel through the short-term “emergency” contracts and has not brought effect to the long-term supply contract concluded a year ago.

“Econ appears not to appreciate that the award of the tender and the subsequent conclusion of a contract are two separate events. Eskom admits to awarding the tender but denies concluding a binding contract. It follows that the adjudicator does not have jurisdiction in this matter, because his jurisdiction is entirely dependent on a contract between the parties.

Eskom admits sending the letter of award. However, it denies that a contract came into existence as a result,” Eskom said.

Email correspondence between Mlonzi and Eskom through its group executive in the generation, Bheki Nxumalo, however, confirms that a contract was in place.

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“This serves as confirmation that a contract is in place between Eskom and Econ Oil and Energy for a period of five years for the supply, delivery and off-loading of fuel oil to various Grade 1, 2 and 3 Eskom’s coal-fired power stations.

“The contract may start from November 18 2019 ending November 17, 2024,” reads a letter with Nxumalo’s signature.

Econ Oil was to supply 11 power stations. The parastatal’s earlier attempt to cancel the tender was thwarted by Treasury in July when the utility’s request to cancel the contract was declined.

In a written reply to the request, Treasury said it was not clear how Eskom would defend itself against possible litigation from service providers who have been served with letters of an award.

“National Treasury does not support cancellation of a tender as the reason for the cancellation is not in line with the Preferential Procurement Policy Framework Act 2017. Eskom is advised to take into consideration the issues raised and refer this matter back to the BEC (bid evaluation committee) and BAC (bid adjudication committee),” Treasury said at the time.

Last month, The Star reported that the cancellation of the contract after allegations that the tender awarded had irregularities. An Eskom statement at the time said the company had inflated prices when lower-priced alternatives were evident.

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A forensic investigation by advocate Wim Trengove, according to the report, stated that the cancellation was effected based on unproven allegations but did not suggest that it was in any way improper.

A source close to Econ Oil said the company had taken Eskom to arbitration to enforce the contract.

“Eskom, in the papers, is claiming that there is ‘no contract’ with Econ Oil, yet they went to the board to ask for the contract to be cancelled. Eskom, ironically, is no more claiming that the contract is cancelled because of ‘corruption’ by Econ Oil. They have conceded that Econ Oil is not corrupt. Apparently, Eskom appointed a forensic company to investigate Econ, and they found nothing. Since the award a year ago, none of the law enforcement agencies, or even investigative bodies have investigated Econ. They are using smear tactics against the company,” said the source.

When contacted for comment last week, Eskom said the matter related to Econ Oil was the subject of imminent court processes, and therefore they did not want to comment.

The Daily News

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