Eskom did not follow correct processes for $2bn Chinese loan, state capture inquiry told

Eskom flouted its own processes when it accepted a dodgy $2bn loan agreement from Chinese-based business Huarong Energy Africa.

This is according to Eskom’s corporate funding specialist Sincedile Shweni, who was speaking at the state capture inquiry on Monday.

Shweni, who has been employed at Eskom in various capacities since 2001, said Huarong’s proposal for the loan agreement was not sent to the utility’s asset and liability committee (Alco) for approval.

Shweni told commission chair deputy chief justice Raymond Zondo that Huarong’s proposal was initially well received "as something we could look into and pursue".

In 2016, the cash-strapped utility received a formal unsolicited proposal from Huarong for a "financing solution" to build or refurbish its power stations. The contract outlined a $2bn loan Eskom would receive; but it had caveats. There was a commitment fee of about R400m and an even larger penalty if Eskom backed out.

Shweni described the normal processes that should be followed when an unsolicited proposal was received.

"Whoever comes with an unsolicited proposal meets one of the treasury representatives. The next step is to do some vetting or verification of the entity, especially if the entity is fairly new, like Huarong. The party will then give us a term sheet which we will evaluate," he said.

"If it is palatable to the needs and requirements of treasury, we would take it to an open tender process which we call an RFP [request for proposal]. Or if it is a bespoke transaction ... the practice note allows us not to go the RFP route. In respect to Huarong, we decided to go on the RFP route.

"Once the proposal is acceptable by the team it needs to go to the treasury asset and liability committee. It is discussed and approved for recommendation by the CFO."

Shweni said the Huarong proposal "did not fulfil this requirement”. He said "it is not normal that we do things that way".

Former Eskom CEO Anoj Singh allegedly ignored legal advice by an independent law firm, White & Case, and other officials at Eskom who said the terms of the loan were ambiguous and signed off on the deal.

After Singh resigned under a cloud in January last year, Sean Maritz - acting as Eskom’s CEO at the time - allegedly approved the R400m commitment fee or prepayment to Huarong. 

Shweni’s testimony is continuing.