Case Study: Will ESKOM Corruption put the Lights out in South Africa?

ESKOM Holdings SOC Ltd is one of the world’s largest energy firms and the sole energy producer in South Africa, . So you might think that it would be a business that generated large profits alongside its energy output, as other global leaders in the energy industry do. Such profit would be returned to the South African Government as the sole shareholder and could  be used to develop communities, the economy, schools, hospitals and so on. 

Years of corruption in ESKOM has left the company, one of the world’s largest energy  producers, on the brink of collapse. According to an IMF report this level of debt is “unsustainable”, and warned of “considerable adverse consequences.” [prob need to mention that the company is in debt in the corruption intro bit ie: that is the outcome as it’s not mentioned until here only that it prevent the company from making large profits which is very different.

What started with the corrupt activities of Jacob Zuma appears to have turned into a free-for-all for anyone wishing to “take their turn” and extract money for their own personal gain, whether through theft, fraud, or other corrupt activities. 

For taxpayers in South Africa, energy bills continue to rise and the power grid continues to weaken and become less reliable thanks to the lack of investment and reliance on old, coal-fired power stations. 

Unreliable facilities, regular breakdowns, and the failure to bring other units online have all contributed to increasing outages.

Sadly this is not the case. Instead, ESKOM has suffered numerous incidences of corruption, many of which have resulted in arrests and prosecution by the South African Prosecuting Authority. The impact of this activity is that ESKOM has not generated the substantial profits that one might expect. 

Examples of Corruption at ESKOM

There are numerous examples of corruption at every level of the business, in procurement from external companies and fraud and theft. For the purposes of this case study we have used several examples that show how vulnerable a company can be to corruption.

ESKOM Coal Supply

Ted Blom, a former ESKOM employee and now independent energy analyst has claimed that the supply of coal to ESKOM is plagued with rampant corruption. He has claimed that such is the scale of this corruption that R2 – R3 billion ($115.7 – $173.5 million are being lost per month, despite public and political outcry at the performance of ESKOM, and changes to the management and board. 

Blom has reported that ESKOM carried out its own investigation into coal supplies and found “a number of irregularities within the coal procurement process”, but that the company failed to act upon its findings. Furthermore, according to a colleague of Blom’s, 54 individuals involved in corrupt activities were named but no action was ever taken. By the time of the investigation, many of the individuals named had been asked to leave ESKOM, joined the supplier side of the coal to ESKOM supply chain, or retired wealthy. Blom reports that in one instance Just Coal, a major supplier of coal to ESKOM at the time, was fined R8.6m³ by ESKOM for supplying poor quality coal, along with other charges. 

ESKOM has said that it has no knowledge of the report to which Ted Blom has referred. 

The Zondo Commission Fourth Report 

The Zondo Commission’s fourth report, launched in 2018, accuses South Africa’s former President Jacob Zuma of helping the Gupta brothers to take control of ESKOM. It is investigating “state capture”, where government departments were infiltrated and money and assets misappropriated by a group of individuals. The Commission describes Zuma as “central” to the Gupta brothers’ plans. 

The Zondo report states that, “The Guptas must have identified President Zuma early on as someone whose character would allow him to be used against South Africans, his own country and his own government, in order to advance their business interests.” 

This allowed the Gupta brothers to whisper in the ear of the President and influence such appointments as heads of public enterprises to extend their influence. In fact, in March 2015, four of ESKOM’s executives, including its CEO, were fired following presidential interference. “President Zuma’s interference […] marks the launch of the Guptas’ plan to take over Eskom, and the President played a central role in this plan,” the Zondo Commission reported. 

The Gupta brothers left South Africa shortly after President Zuma left office, and were subject to an Interpol Red Notice for fraud and money laundering charges and were subsequently arrested in Dubai in June 2022. 

The Zondo Commission reported that Zuma “readily opened the doors” for the Gupta brothers to “help themselves to the money and assets of the people of South Africa”

Matshela Koko 

Matshela Koko, the former CEO of ESKOM was charged in October 2022 on multiple counts relating to corruption, fraud, and money laundering. Koko’s wife, two stepdaughters, and other officials were also charged in this case, which involves over $121 million in power station construction contracts.

This arrest stems from a 2015 contract awarded to Swiss conglomerate Asea Brown Boverei (ABB) to install control and instrumentation systems at the Kusile Power Station near eMalahleni in Mpumalanga.

The Zondo Commission has stated that Koko must be investigated and possibly prosecuted for a number of Gupta-linked deals at ESKOM including:

  • A R659 million prepayment for coal paid to Gupta-owned Tegeta
  • A coal supply contract worth over R4 billion to Gupta-owned Tegeta for the supply of coal from the Brakfontein mine
  • R595 million paid to Gupta linked Trillian through two contracts worth R1.6 billion with KcKinsey

Matshela Koko has said that the Zondo Commission’s findings were “irrational, unreasonable and should be set aside”.

Asea Brown Boverei (ABB)

ABB, a Swiss multinational engineering firm has agreed to pay R2.5 billion ($144.6 million) to South Africa in punitive reparations after it was fraudulently awarded a multi-billion Rand contract at the Kusile Power Station, which former CEO Matshela Koko was subsequently arrested and prosecuted for. In 2020, ABB paid ESKOM R1.6 billion ($92.5 million) after it was implicated in state capture-era corruption. 

Michael Lomas

Michael Lomas, a former ESKOM contractor is likely to be extradited from the UK to South Africa following a successful application for extradition by The National Prosecuting Authority’s Investigating Directorate and UK lawyers. Lomas is alleged to have been involved in the ESKOM Kusile power plant corruption case and is due to appear in court in South Africa in April 2023 with four other individuals.

Angelo Cysman

Angelo Cysman was a Western Cape ESKOM employee and plant operator in Atlantis. He was arrested and appeared in magistrates court in December 2022 charged with theft after he allegedly stole R500,000 worth of diesel from the power facility. 

The Outcome of Corruption and Mismanagement at ESKOM

As a result of corruption and mismanagement at ESKOM, South Africa experienced over 200 days of power cuts in 2022¹. By the end of 2022, ESKOM had raised its power cuts to “Stage 6”. This requires 6,000 megawatts to be shed from the national grid and at least 6 hours a day without power for most South Africans.

“Stage 6” outages were first implemented in 2019, and again earlier in 2022 as well as in December. 

The people of South Africa are now experiencing frequent power cuts, impacting daily life. South Africa is the largest industrialised nation in Africa. Economic stability relies on a complex mix of requirements, key among them energy security, which South Africa currently lacks. 

So the economic impact is significant. It is estimated that the loss to South Africa’s businesses and industry is R1 billion ($57.8 million) per day.² Some businesses have resorted to utilising backup generators, adding to expenditure that should be available for investment. 

The true cost of corruption at ESKOM is to the South African public who are enduring regular power outages, and the South African economy which is trapped in a place where there is barely enough energy to maintain itself, never mind provide the growth that Africa’s largest industrialised nation should be able to. 

But it is unlikely that the true monetary cost of corruption at ESKOM since the Jacob Zuma “state capture era” will ever be accurately known. At the Financial Times Africa Conference held in London in October 2019, South African President Cyril Ramaphosa said that corruption could have cost South Africa as much as R1 trillion. ($57.8 billion)

The Future of ESKOM 

Corruption in ESKOM and other state-owned corporations is being rooted out, and numerous people arrested and prosecuted, but this appears to have only been possible after the “gatekeeper”, former President Jacob Zuma, left office and was himself investigated and prosecuted.

 Anti-corruption measures that react to corruption are effective, but only deal with incidents of corruption once identified. The systemic corruption suffered by ESKOM simply overwhelmed an already inadequate anti-corruption strategy.

If ESKOM is to survive and deliver for the South African people and economy it must put in place counter corruption strategies that prevent corruption from happening in the first place, defend the company from malign actors who seek to influence processes and people for their own personal gain, and identify risks and incidents quickly and efficiently so that corrupt activities can be defeated. 

As a global counter corruption consultancy, Pavocat advocates the implementation of counter corruption measures at all levels of business and government so that organisations, whether public or private sector, can resist corrupt practices and take effective action against them. That requires a complete set of bespoke counter corruption, integrity, and compliance strategies and services to prevent, avoid and mitigate corruption at all levels. 

The South Africa Regional Centre of Excellence in Integrity (SARCOE) has been established to work alongside the public and private sectors in South Africa and the African continent to work in partnership to defeat the scourge of corruption


¹ Widely reported

² Oxford Policy Management