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- Confidential-

BRIEFING REPORT STANDING COMMITTEE ON PUBLIC ACCOUNTS OFFICE OF THE CHIEF PROCUREMENT OFFICER 10 MAY 2017. - Confidential-. Tables of content. Introduction Coal Supply Agreement between Eskom and Tegeta Findings and comments (page 38 -43 of 2015 PWC report)

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- Confidential-

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  1. BRIEFING REPORTSTANDING COMMITTEE ON PUBLIC ACCOUNTSOFFICE OF THE CHIEF PROCUREMENT OFFICER10 MAY 2017 - Confidential-

  2. Tables of content • Introduction • Coal Supply Agreement between Eskom and Tegeta • Findings and comments (page 38 -43 of 2015 PWC report) • Conclusion relating to negotiation team ( page 80(7.6) of the 2015 PWC report • Site visit observations (page 38(5.136) of 2015 PWC report • Main recommendation (page 87 of 2015 PWC report) • Implementation of main recommendation (Page 5 and 12 2016 PWC report) • Facts to be established by SCOPA - Confidential-

  3. Introduction • Eskom appointed PriceWaterhouseCoopers (PWC) to conduct a Review of the Coal Quality Management of certain coal suppliers (Mines). • The briefing session was held in September 2015 • The review covered Procurement, Contracting, Contract Management and Quality & Assurance. • Contracts of four mines were reviewed, namely: • Mine 1: “AC”/ “A Co” • Mine 2: “D Co” / “CC c” • Mine 3: “B Co” / “BC” • Mine 4: “E Co” / “AM” • PWC issued a report dated 26 November 2015. • Eskom further appointed PWC to assess management’s implementation of actions raised in a report dated 26 November 2015 and issued a report dated 10 November 2016. - Confidential-

  4. Introduction (Continues…) Names of mines reviewed were identified in PWC report dated 10 November 2016 as indicated below: • Mine 1: Tegeta Mining and Exploration: Brakfontein Colliery (“Tegeta/Brakfontein”) • Mine 2: Tshedza Mining Manungu Colliery (“Tshedza/Manungu”) • Mine 3: Keaton Mining Manungu Colliery (“Vangatfontein”) • Mine 4: Universal Coal Kangala Colliery (“Universal Coal/Kangala”) - Confidential-

  5. Coal Supply Agreement • Negotiation meetings held between 9 May 2014 and 30 January 2015 • Water use licence issued to Tegeta on 22 December 2014 • Coal Supply agreement signed on 10 March 2015 • Supply of coal commenced from 1 April 2015 • Supply of coal suspended on 31 August 2015 and re-instated on 5th September 2015 - Confidential-

  6. Extract from Coal Supply Agreement • Negotiation meetings held between 9 May 2014 and 30 January 2015 • Coal Supply agreement signed on 10 March 2015 • Mine 1: Tegeta Mining and Exploration: Brakfontein Colliery (“Tegeta/Brakfontein”) • Mine 2: Tshedza Mining Manungu Colliery (“Tshedza/Manungu”) • Mine 3: Keaton Mining Manungu Colliery (“Vangatfontein”) • Mine 4: Universal Coal Kangala Colliery (“Universal Coal/Kangala”) - Confidential-

  7. Extract from Coal Supply Agreement - Confidential-

  8. Extract from Coal Supply Agreement - Confidential-

  9. Extract from Coal Supply Agreement - Confidential-

  10. Extract from the Mining Right - Confidential-

  11. Extract from the Mining Right - Confidential-

  12. Findings and Comments

  13. Findings and Comments (Continues…) - Confidential-

  14. Extract from Dr Alphen’s report dated 12 March 2015 - Confidential-

  15. Extract from Dr Alphen’s report dated 05 October 2015 - Confidential-

  16. Findings and Comments (Continues…) - Confidential-

  17. Findings and Comments (Continues…) - Confidential-

  18. Findings and Comments (Continues…) - Confidential-

  19. Findings and Comments (Continues…) - Confidential-

  20. Findings and Comments (Continues…) - Confidential-

  21. Extract from Coal Supply Agreement - Confidential-

  22. Extract from Coal Supply Agreement - Confidential-

  23. Extract from Coal Supply Agreement - Confidential-

  24. Findings and Comments (Continues…) - Confidential-

  25. Findings and Comments (Continues…) - Confidential-

  26. Findings and Comments (Continues…)

  27. Findings and Comments (Continues…) - Confidential-

  28. Extract from the Coal Supply Agreement - Confidential-

  29. Findings and Comments (Continues…) - Confidential-

  30. Findings and Comments (Continues…) - Confidential-

  31. Findings and Comments (Continues…)

  32. Findings and Comments (Continues…) - Confidential-

  33. Conclusion relating to negotiation team • Negotiation Team Leaders evidently are in full control of the process from beginning to end. There was no evedence to indicate that there was any oversight fro PED General Manager during the processes of the unsolicited offers, although he attended some of the meetings with suppliers and led the final negotiation meeting on one of the contracts. • Further, despite Eskom’s procurement policy prohibiting single adjudication, PED continued, seemingly with a mandate from BoD TC to enter into contracts in excess of R3bn each committing Eskom for 10year or more with single signing authority. Despite having properly constituted tender committees at various levels in the organisation, and the fact that these negotiations were lengthy(6 to 24 months), no evidence was provided that tender committees were consulted - Confidential-

  34. Site visit observation • BrakfonteinColliery was in in construction or development phase and make use of a subsidiary company with limited coal mining experience. • Brakfontein Colliery has no coal beneficiation facilities, the Mine crushes and screens various ROM stockpile for different markets. • According to the GM of the Mine, they supply to Eskom only “4 Seam Lower” coal and the rest to various other coal mines or vendors with washing facilities that blends or “washes” into other quality specifications. - Confidential-

  35. Main Recommendation - Confidential-

  36. Implementation of main recommendation • Coal Supply Agreement not sent to Eskom’s Legal Department for review as combustion test results and approval for modification were required. • Post the review the coal supply agreement will be sent to Eskom Legal Department and thereafter will be signed. (Refer to page 12 of PWC report dated 10 November 2016) - Confidential-

  37. SCOPA to establish the following: • Was the 2015 PWC report considered by Eskom Senior Management. • Which effective and appropriate steps were implemented by Senior management. • Was the 2015 PWC report considered by Eskom Audit Committee. • Which effective and appropriate steps were recommended by the Audit Committee. • Was the 2015 PWC report considered by Eskom Board. • Which effective and appropriate steps were recommended by the Audit Committee. • Was the 2015 PWC report considered by external auditors of Eskom. • Was the Coal Supply Agreement red flagged in the 2015/16 audited annual financial statements. • Post the review the coal supply agreement will be sent to Eskom Legal Department and thereafter will be signed. (Refer to page 12 of PWC report dated 10 November 2016) - Confidential-

  38. THANK YOU - Confidential-

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