Update: Eskom's Brian Molefe falls on his sword
In a break with tradition, Eskom chief executive Brian Molefe on Friday tendered his resignation from the utility, scoring a rare victory for good corporate governance.
“I have, in the interests of good governance, decided to leave my employ at Eskom from January 1 2017,” said Molefe in a statement e-mailed by the electricity producer. “I do so voluntarily indeed,” while admitting to no wrongdoing.
In October, Molefe was fingered by the public protector, in a report titled “State of Capture”, for his close proximity to the controversial Gupta family, who have in the past two years amassed billions of rand in contracts with Eskom.
In his resignation letter, Molefe said: “I am confident that, when the time comes, I will be able to show that I have done nothing wrong and that my name will be cleared.”
Molefe’s departure is set to focus the spotlight on the board, under whose supervision he worked. Chaired by Ben Ngubane, who was also fingered in the report for possible conflict of interest, the Eskom board will have to prove it played its supervisory role diligently, and that at all times it acted in the best interests of Eskom. Ngubane last week slammed the State of Capture report as “speculative”.
The Eskom board says it regrets Molefe’s departure.
Original cover story:
Power corrupts: Behind Eskom's Gupta connection
Brian Molefe was, until recently, seen as an inspirational manager and shining example of economic transformation. But his goose now appears to be thoroughly cooked — following revelations, in the former public protector’s report on state capture, of his far-too-close connections with the Gupta family’s interests. He will have a long, hard struggle to separate his name from theirs, and from the ‘Saxonwold Shebeen’.
He is easily one of SA’s most successful civil servants and black business leaders. His critics would say the 49-year-old Brian Molefe was never going to come out of a probe into alleged corruption smelling of roses. Still, many who know his track record are surprised by the extent to which the public protector’s "State of Capture" report, published last week, taints him instead with the smell of the manure planted around those roses.
After being fingered by former public protector Thuli Madonsela for allegedly shady dealings involving the Gupta brothers — who consider Molefe a "close friend" — the Eskom CEO has a mountain to climb to clear his name. His is a name that crops up 71 times in Madonsela’s 355-page report into allegations of improper and unethical conduct by President Jacob Zuma, certain ministers, state-owned companies and the Guptas.
Last week, a tearful Molefe ripped into Madonsela, saying: "What pains me the most is that I never had an opportunity to explain what I am saying now."
He painted a picture of himself as a victim of an unfair process set up to smear him. In the wake of the report, he said "calls for (Zuma’s) resignation are out of hand — I will resign before he does".
Madonsela wasn’t fooled, saying Molefe was "a master of diversion", who created a "lovely movie moment" by weeping crocodile tears. Clearly, no love is lost.
Molefe is, in fact, the fourth-most-mentioned figure in the report, alongside a cast that includes Ajay Gupta, mining minister Mosebenzi Zwane and co-operative governance minister David Des van Rooyen and Zuma.
It represents a thumping reversal for a man who earned kudos as a highly rated member of Trevor Manuel’s team at national treasury, and someone identified early as one of the most promising of the young ANC cadres sent abroad before 1994 for training to take over the financial institutions of the democratic nation.
After 2003, his reputation was enhanced as CEO of the Public Investment Corp (PIC) — Africa’s biggest asset manager with R1.8trillion — where he was cast as a crusader for economic transformation and good governance during a seven-year tenure.
At the time, Molefe was seen as a shoo-in as a future finance minister. Had he not fallen out of favour with the newly installed Zuma administration in 2009, it might have been a different story.
The root of the current fallout began in April last year, when Molefe became CEO of Eskom. Following a period in which the utility was run by a succession of CEOs, some disastrous, Molefe was depicted as the man to remedy all ills. Chief among Eskom’s woes was the crumbling power-generation infrastructure, which had led to loadshedding, sapping SA’s economy.
By ending loadshedding, Molefe has indeed done well — something Eskom’s board never misses a chance to trumpet. But all this has been overshadowed by Madonsela’s report. In the space of her 355 pages, she has recast Molefe as a Gupta lackey, alongside such dubious characters as Zwane and Van Rooyen.
Madonsela’s findings, which she recommended be tested by a judicial commission of inquiry, say that Molefe and the Eskom board went out of their way to unfairly favour the Gupta-owned Tegeta Resources. If true, it would be a classic case of state capture.
This saga dates back to last year, when Swiss-based commodities trader Glencore put its Optimum Colliery into business rescue, after Eskom refused to compromise on a contract dispute.
Since 1993, Optimum had been locked into a long-term contract to supply coal to Eskom at R150/t — which was below its cost to mine that coal. Glencore tried desperately to get Eskom to increase that price, first to R570/t and then to R300/t, for the last two years of the agreement to the end of 2018.
Eskom wouldn’t budge. Molefe insisted on paying the contractually agreed price, correctly pointing out that Eskom had often found itself on the wrong side of these deals.
So Glencore put Optimum into business rescue, refusing to fund its losses. This threatened coal supplies to Eskom — raising the prospect of severe power rationing. Still, Molefe dug in his heels, and accused Glencore of trying to blackmail Eskom into coughing up more money.
In her report, Madonsela says Glencore appears to have been "severely prejudiced by Eskom’s actions", adding that Eskom conducted itself so as to force Optimum "into business rescue and financial distress".
The suggestion that Eskom wanted to force Glencore to sell the mine to the Guptas is reinforced by Zwane’s trip to Switzerland to negotiate with the Guptas. This trip, says Madonsela, "appears to be irregular" and may have broken ethical rules.
To make it worse, when Tegeta couldn’t raise the R2.1bn to pay for Optimum, Eskom miraculously popped up with a R659m "prepayment" for coal it hadn’t yet received. Conveniently, Eskom took that decision to pre-pay at a 9pm board meeting, two days before the Guptas’ deadline for payment.
A flurry of cellphone calls between Molefe and Ajay Gupta culminated in Eskom approving the "prepayment" — taking the Eskom payments to Gupta-associated companies to R1.1bn within a few months.
Damningly, Madonsela says: "The only entity which appears to have benefited from Eskom’s decisions with regards to Optimum was Tegeta, which appears to have been enabled to [buy] all shares held in Optimum."
Eskom then bent its rules further, deviating from its 30-day payment terms to pay Tegeta after only seven days. Eskom argues this was to ensure supply from a supplier whose business was near collapse.
Yet other Eskom suppliers, including Exxaro Resources and Anglo American, say they weren’t afforded similar treatment.
Last week Eskom hotly rejected Madonsela’s findings, claiming it had not been given an opportunity to tell its side of the story. Chairman Ben Ngubane accused Madonsela of making "speculative findings". "Eskom did everything by the book," he said.
But it is the revelations of Molefe’s interactions with the Guptas — a relationship he didn’t disclose even as the family scored lucrative deals — that are the most damaging.
Two facts from her report have seized the public imagination. The first is that in the period leading up to the Optimum deal, Molefe spoke on his cellphone at least 69 times with Ajay Gupta and Ronica Ragavan (a Gupta business director). Cellphone evidence suggests he visited the Guptas’ residence in Saxonwold, Johannesburg, no less than 19 times in four months.
Even though Ajay Gupta told Madonsela that Molefe was one of his "very good friends", Molefe didn’t declare this relationship when deals were done.
Last week, an emotional Molefe lamented the unfairness of Madonsela’s report. "The [former] public protector has painted me as corrupt, without affording me an opportunity to put my side of the story," said Molefe, adding that he would challenge the report.
"There will be a commission of inquiry whose results will only be out in 18 months. In that period I will be branded as corrupt and my children will be mocked."
Then, as if he had just seen his world collapse, Molefe broke down in tears, taking a few minutes to compose himself.
But the second, and perhaps most lampooned, element of the saga came from his response to questions about why he was visiting the Guptas. Initially, Molefe said he could have been visiting "a shebeen" in the upmarket suburb (spawning the Twitter hashtag #SaxonwoldShebeen). The next day, he said he’d never actually visited a shebeen there, but had heard of its existence.
Pointedly, he declined to reveal the content of his phone calls to the Guptas, saying he was taking legal advice on how to respond to the public protector’s report.
Molefe’s rock-star stature as a business leader and turnaround specialist was legendary up until last week. He was, after all, lauded as the man who kept the lights on when everyone else had failed.
Ironically, he was even likened to Madonsela, as one of a vanishingly small group of inspiring public servants in a country desperate for leadership.
When his name was touted as a possible finance minister — even as Zuma’s favoured candidate to replace Pravin Gordhan — some would still have welcomed it.
Today, in the aftermath of Madonsela’s report, any elevation for Molefe of this sort would take on a rather different hue.
This is especially since Zuma, last December, re-appointed Gordhan as finance minister only after he was forced to rescind his baffling choice of another Gupta lackey, Van Rooyen, who lasted only four days.
It’s a steep fall for a man whose reputation began taking shape in the early years after the 1994 transition, as one of the group of young ANC cadres who were seen as future leaders. However, he had been closely associated with Mbeki’s "class project", which was reviled by leftist elements of the ANC who would ultimately ensure Zuma’s elevation to the presidency.
Molefe’s stature was enhanced further during his tenure in national treasury, where he was deputy director-general. Self-evidently smart, and able to avoid any accusatons of personal enrichment, there were few quibbles when he was appointed CEO at the state pension manager, the PIC.
At the PIC, Molefe became the poster boy for black excellence, during seven effective years as CEO between 2003 and 2010 — the era straddling Mbeki’s presidency and the volatile transition to the Zuma era,
However, towards the end of his tenure, Molefe found himself on the wrong side of the political divide, accused of being aligned to Mbeki and the emerging Congress of the People (Cope). To many, this pitted Molefe in opposition to a surging Zuma.
Riding the leftist popularity wave, Zuma defeated Mbeki in a tense contest for the leadership of the ANC in 2007, and Mbeki was removed as president of SA in 2008.
Eskom's roll-out plan
Almost immediately, Molefe came under pressure to finance certain deals associated with Zuma’s allies. He resisted — much to the chagrin of Zuma’s allies who had seen how he had previously green-lighted deals linked to Mbeki’s allies, including the politically connected Elephant Consortium, headed by Smuts Ngonyama.
During the Mbeki era, the PIC had also bankrolled the buyout of cement-maker Holcim’s SA operations by the Afrisam Consortium — a deal for which Mbeki had unwisely campaigned.
Inevitably, in March 2010, a year after Zuma’s elevation, Molefe offered to resign. He was persuaded to stay for a few months, but left in July, replaced by Elias Masilela.
Besides being an economist, Masilela would have been more palatable to Zuma. Zuma and Mbeki had operated at times from Masilela’s parents’ home in Swaziland, making Masilela part of ANC royalty.
Molefe, by contrast, had been a struggle activist inside the country, growing up in the Bophuthatswana homeland.
After leaving the PIC, Molefe found himself in the political wilderness for months, accepting a low-profile job as an asset manager at Investec’s Sandton offices. Molefe was, to all intents and purposes, persona non grata, his career as a civil servant seemingly at an end. Yet in March 2011, Molefe was appointed CEO of Transnet, replacing his former treasury colleague, Maria Ramos, who had left in 2009. "For him to get the Transnet job, Brian had to go and apologise to the current leadership," says one of his former PIC colleagues — a person who has also visited the Gupta compound.
It seemed Molefe was back from the cold. Another well-connected source told the Financial Mail that from late 2010, Molefe was seen frequenting public places with the current crop of ANC and government leaders. "That’s when his association with the Gupta family started," said the source.
This appears to have been corroborated by Madonsela’s report, in which the Guptas’ former driver said that Molefe, and many other government officials, were frequent visitors to the Gupta compound after 2010. Soon after his first visit, insiders claim, Molefe was appointed to the Transnet post.
Madonsela also raises some serious questions about the rail utility, though she doesn’t directly link Molefe to the allegations of corruption. The complaints against Transnet — which Madonsela says will form the "next phase" of this investigation — also involve companies associated with the Guptas, which found favour mysteriously during Molefe’s tenure.
Madonsela’s report may not be the death knell for Molefe’s career, and he may even legitimately claim the role of finance minister at some stage. But what is clear is that he has plenty of work to do to clean up his image and convince a disappointed public that he is ethical.
To do so, he’ll have to exercise much better judgment than he has in the recent past — and pick his friends more carefully.
What it means: Before joining Eskom, Molefe was on the wrong side of the ANC and had to make nice with Zuma’s lot to get ahead.