Econ Oil gears up for R5-billion fight with Eskom

The stakes have risen in the impasse between limping state power company Eskom and a black woman-owned contractor, Econ Oil, which stands to lose its R5-billion contract to supply fuel oil amid allegations of impropriety. 

The imminent termination of Econ Oil’s contract by Eskom has already seen one of the state-owned enterprise’s non-executive directors, Sifiso Dabengwa, resign in protest, as well as Econ Oil director Nothemba Mlonzi lay a criminal defamation charge against Eskom chief executive André de Ruyter.

Now Mlonzi has upped the ante by hiring a top legal team led by senior counsel Tembeka Ngcukaitobi to work on a civil suit against Eskom.  

The Mail & Guardian has learnt that Mlonzi, whose company has supplied fuel oil to Eskom since the early 2000s, has roped in two other advocates, Arnold Subel SC and Sam Cohen, to work alongside Ngukaitobi. The team will be briefed by David Kahn of Kahn and Associates.

Mlonzi, herself an attorney who has acted as a high court judge, said she chose the legal route because of the “public onslaught by Eskom” on her and her company’s reputation. 

“In a case where we have not even been notified what we have committed, nor ever called to answer in the probes or reviews referred to, it has been reckless to the extreme for Eskom to play in the public frenzy on the issue,” she said.

The M&G has established that last week Eskom asked Mlonzi for company records related to two other iterations of the same contract dating to 2011, as it believes her company is guilty of inflating prices and colluding with internal Eskom staff and other suppliers to fix prices charged to the power utility. 

This leg of the probe will also focus on Eskom employees involved in the evaluation and adjudication of the 2011 contract. 

Eskom spokesperson Sikonathi Mantshantsha said results of the “review” could see Eskom lay criminal charges as well as claim money it feels it lost as a result of the alleged irregularity. Eskom, he added, was still exploring whether it should approach the courts to have the awarded contract declared null and void. 

“The contractual review by Eskom started in March 2020 and is contained in the SLA (service level agreement) as a contractual imperative. Eskom has a right to audit and request any information pertaining to the supply of fuel by Econ Oil,” he said.

Lucrative contracts at state-owned enterprises are highly contested, and Eskom has been one of the most affected by this as corruption has contributed to the precarious situation it now finds itself in. 

The power supplier’s statement of intention to terminate Econ Oil’s award two weeks ago seems to have caused divisions inside Megawatt Park. Besides Dabengwa’s resignation, some insiders are claiming that Mlonzi is being targeted because she is a black woman, while at least one speculated that Eskom was taking her billions and giving them to other companies that lost out in a fair bidding process.

Mlonzi and her supporters have argued that her company has been winning big portions of the contract for years. It should not be a surprise that in 2019 she was awarded this chunk of the fuel oil supply contract. Her company was also one of the preferred bidders in a 2018 version of the contract that was cancelled due to irregularities.

Econ Oil’s award, which was meant to begin this month, would have seen the company deliver 14-million litres per month of grade one, two, and three fuel oil to five power stations for the next five years. Instead, the company has been appointed on three-month contracts to deliver about 57 000 litres of the same grade of fuel oil to 16 power stations.

“The balance of Mlonzi’s contracts have been given to the same companies that lost out to her in the two bids in 2018 and last year,” said one insider, who asked not to be named. 

Another Eskom insider queried why Econ Oil was the only supplier being probed when in 2011 the contract was awarded to it and FFS Refiners, and in 2019 the contract was awarded to it, FFS Refiners, and Sasol. “Is there any reason why Sasol and FFS were not mentioned in the media statement issued by Eskom?” the source asked.

The M&G has seen correspondence, dated November 2019, between Eskom chief procurement officer Solly Tshitangano and Econ Oil, in which Tshitangano raises the concern that the company had concluded a back-to-back agreement with only one of the three companies it had submitted commitment letters from in the bid. Commitment letters are an indication of how much fuel oil a company can access and deliver, and as a result of this Tshitangano said Econ Oil’s allocation would be reduced to 5-million litres a month. 

“Eskom will only sign a contract with Econ Oil based on volumes confirmed by back-to-back agreements and not commitment letters. Commitment letters were acceptable at bidding stage and not at contractual stage,” he said.

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